What Is an Investment?

An investment includes all accounts or financial instruments that may gain or lose value through price increases, appreciation over time, or interest earnings. Investments range from financial instruments like stocks, mutual funds, or ETFs to tangible assets such as collectibles, gold and silver, classic cars, or real estate.

In theory, interest-bearing savings accounts are also considered investments. However, especially in Germany, savings accounts and passbooks generate little to no interest and rarely produce gains. That’s why, at Allianz, they are categorized under "saving" rather than as an investment for building wealth.

Risk notice: Every investment in the capital market involves both opportunities and risks. The value of investments may rise or fall. In the worst-case scenario, a total loss of the invested amount may occur. You can find detailed information under Risk Notices.

What Investment Options Are Available?

There are various ways investors can invest their money. Bonds, stocks, mutual funds, and ETFs or index funds are among the most common. Before deciding which option is best for you, it can be helpful to directly compare the different types of investments.

Why Is It Important to Build Wealth Through Profitable Investments?

For many years, savers received little or no interest on their bank deposits. In some cases, negative interest rates were even applied to savings. This changed in 2022 when the European Central Bank (ECB) initiated a shift in interest rates by Allianzg key rates. Since then, interest rates on typical bank deposits—such as savings and fixed-term accounts—have risen. Despite a first rate cut in June 2024, attractive rates are still available.

However, money held in savings accounts continues to lose purchasing power due to inflation. In 2024, inflation in the Eurozone remains elevated, although lower than the peaks of previous years. This means that non-interest-bearing balances are still losing real value. To counter inflation, it may be worthwhile to consider alternative investments such as securities.

More about investing in ETFs

What Does Diversification in Investing Mean?

Diversification means spreading your investments across different asset classes to reduce risk. By dividing your wealth between ETFs, fixed-term deposits, and savings accounts, you can protect yourself from major losses and make the most of your investments. This strategy is particularly beneficial when assets develop differently in value. Investors can also benefit by offsetting potential losses with gains elsewhere.

Costs of Investing

The cost of investments can reduce overall returns. That’s why comparing fees can help optimize results. While savings and fixed-term accounts are usually free of charge, equity funds often incur high management fees. Choosing lower-cost ETFs instead of individual stocks or actively managed funds can help minimize these expenses.

What Is the Best Investment Duration?

For equity funds or ETFs, the duration of the investment is crucial in limiting or avoiding potential losses. A long-term horizon is often beneficial for such investments. Even if markets decline, there is a better chance of recovery over time. When choosing the best investment, it's important to decide whether a short-, medium-, or long-term horizon is suitable. Investments up to 3 years are considered short-term, up to 10 years medium-term, and anything beyond that long-term.

Short-Term Investment: What Are My Options?

Short-term investments are characterized by short notice periods, giving investors quick access to their funds. These types of investments are often used to temporarily park unused money before committing to long-term investment strategies. They are also suitable for building an emergency reserve. It is generally recommended to keep an amount equivalent to three months' salary as a reserve to stay liquid in unforeseen situations. Common short-term investment options include savings accounts and fixed-term deposits with short durations. Savings accounts are highly liquid, allowing deposits and withdrawals at any time. They are also considered relatively low-risk, as balances are protected up to €100,000 per person and bank under the EU-wide deposit guarantee scheme.

What Are the Options for Medium-Term Investments?

Overview of Long-Term Investments

How do you find the best investment?

When deciding how best to invest your money, the so-called Magic Triangle of Investing can be a helpful guide. Each investment option can be placed within this triangle, which represents the three core criteria of investing: security, liquidity, and profitability. These are the key and comparable attributes of all investments. Depending on the characteristics of a specific investment, it can be positioned accordingly. For example, aiming for high returns usually requires accepting higher risk. Conversely, investors seeking more security may have to accept lower returns.

The triangle offers a simplified model of investment characteristics. The goal is to determine your own position within it and to find a suitable mix of different investments that reflects your personal risk-return profile.

Determining Risk Tolerance

Most investors desire the best possible investment with no risk, but high interest and strong returns. However, all investments involve risk—especially equity funds, securities, and index funds. Since market trends cannot be predicted, it is important to only invest money that can be set aside for the full investment period.

Many providers of equity funds and ETFs use historical data and past performance to calculate volatility, or the degree of fluctuation. While these figures can help guide investors, it is essential to understand that past performance is not a reliable indicator of future results. Investors can also adjust their portfolio to match their personal risk tolerance—for example, by selecting an ETF portfolio with a lower proportion of equities.

Choose your ETF portfolio now

Define Your Goals and Capital Needs

To find the most suitable investment, it's important not only to determine your risk tolerance but also to define clear goals, financial needs, and investment horizon. If you're saving for retirement, a long-term investment may be appropriate. For investors who know they will need the capital in a few years, a medium-term investment may be more suitable. Ultimately, the expected return is also a key consideration when selecting an investment strategy.

Review Available Capital

To determine the best investment strategy for your individual situation, it’s important to assess your total wealth. Investors should have a clear overview of how much money they need each month. It is also advisable to set aside a sufficient emergency reserve—typically around three months’ salary.

Those who still have loans to repay and access to a larger sum in the short term may consider using that money for a special repayment before investing. Since interest on debt generally exceeds any possible investment return, this can be a smart financial move.

The Top Five Financial Insights Among Germans

What financial decisions have people in Germany made, and what lessons have they learned? In a representative survey conducted by Civey, 2,500 individuals were asked which financial insights they plan to follow in the future.

Using ETFs as an Investment with Allianz

Every investor can determine the best investment strategy based on their personal circumstances, investment horizon, and financial goals. Allianz offers options for different investor types to build wealth with attractive return opportunities.

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