3 different financial investment options

The current situation has triggered a lot of interest in the stock market. Either if you are a current investor, and you have watched your stocks take a dive since COVID-19 or if you haven’t had a position yet but see chances due to the relatively low market levels currently.

If you are new to the field investment, it is important to research and find out information available online. You will come across products such as:

1. ETF
2. Mutual Funds
3. Single Stocks

I often get questions from my clients about what option to choose, or what my own preference is. Investing your money always depend on your personal needs. The only thing we can do is clarify what is out there and take a look at current possibilities.

You should invest with money, that you do not need to use for your normal expenses. How much you can invest depends on your budget. And how you want to invest depends on your ‘Risk Profile’, better said how much risk you would like to take.

Exchange Traded Funds

ETF can be traded on stock exchanges. ETF gives you the opportunity to invest and sell a bundle of different assets at the same time. Financial Institutions trade ETF directly from Exchange Traded Funds in large units.

Pros of Investing in ETF

• The main reason to trade in ETF is diversification which reduces the risk in your portfolio.
• ETF can be traded like stocks.
• ETF value change live with the market value. At the end of the day the price is calculated with the Net Asset Value.
• The management fee in ETF is lower compared to Mutual Funds.

Cons of Investing in ETF

• The dividend payout is less than stocks.
• They aren’t controlled by a fund manager so can be more volatile.
• There is a limited amount of ETF you can choose from.

MUTUAL FUNDS

Mutual funds pool your money with that of other investors to have more power and deploy it in various financial assets.

Mutual funds are managed by fund managers and invest in different sectors, and each fund product has a clearly defined objective. In essence you buy units of a mutual fund product to participate in the portfolio. The value of a mutual fund is based on the net asset value or NAV.

Tip: I personally like to work with mutual funds for middle to long term investments.

Pros of investing in Mutual Funds.

• Your fund is taken care of by a professional fund manager.
• The fund managers invest in different schemes and sectors to minimize risk and optimize returns.
• You can choose from many different mutual funds.
• You can invest in mutual funds with small sums.
• You can invest in sector you really care about and are interested in.

Cons of investing in Mutual Fund.

• Management fee in mutual funds is slightly higher compared to ETF.

STOCK MARKET

The reason why investors trade in stock market is when the investors are liquidity motivated investors or when they are information motivated traders. Shareholders collectively own the company. They get the benefits of ownership in terms of profits earned by the company and simultaneously bear the risk of ownership with price fluctuations correlating to the overall company performance.

Pros of Stock market

• Stock market gives you ownership by just investing in single stock.
• Certain stocks can give voting rights.
• Certain stocks can give dividend payments.
• Stock market grow along with economy.
• Buying and selling of single stocks is easy.

Cons of Stock Market

• You need to do research before investing in stocks.
• You need to continuously monitor your investments.
• It is risky to invest in stock markets since you are betting on a single horse each time.
• Share prices fall when the economy falls for instance with black swan events like Corona.

We provide end to end support in financial planning and diversification for expats in Germany. Please contact us for a free of charge consultation and we can start developing your personal strategy today!