Will you sleep for money

How you can build up a long-term fortune with little money


Is wealth management only for the rich? Not correct. If you regularly invest some money in the capital markets, you can build up a fortune in the long term.

For fast readers:

  • The first, easy step towards your own wealth is to invest regularly. The earlier you start, the easier it is to build long-term wealth.
  • The second step, however, is at least as important: the selection of investments.
  • In theory, investments in the stock market can generate very high returns. In practice, however, the following also applies: the more profit is possible with an investment, the higher the risk.
  • It all depends on the right mix of investments. And it should look like you can get decent returns but still sleep well.
  • Similar to a savings book or a fixed-term deposit, bonds ensure regular interest income.
  • With stocks, you can make more profits by increasing their value.
  • Mutual funds allow you to spread your capital across different stocks and bonds.
  • Even with comparatively low monthly savings, you can invest in various funds and have them professionally managed by selected asset managers.

The savings book is not enough

Your own capital reserves make life easier. Regardless of whether you need money for a major purchase or whether you want to financially secure your standard of living in old age: the more money you already have on the high edge, the better. And that means: You automatically come into contact with the topic of the stock market. Because the savings book alone will only help you to a very limited extent in the continuous accumulation of assets. Interest rates are currently simply too low for that. It is more like investments in stocks and bonds with which you can actually increase your money noticeably.

Investing regularly is worth it

The more money you have saved, the more opportunities you have to freely shape your life. It's that simple. The challenge is to build up a fortune on a comparatively small budget. The good news: It's a challenge that you can master with little effort. The first, easy step towards your own wealth is to invest regularly. The earlier you start, the easier it is to build long-term wealth.

The second step, however, is at least as important: the selection of investments. Because depending on what you regularly invest in, you will create a small fortune faster or slower - or you will even make a loss. The decisive factor is the return that you achieve, i.e. the profit in relation to the capital employed. Example: If you invest 1,000 euros and make a profit of 50 euros, this corresponds to a return of five percent.

Unfortunately, especially in the current phase of low interest rates, it can happen that the return on an investment is lower than the inflation rate. In such a case, after a while you will have a little more money in your account, but you can buy less. It would be a real loss of value. You should therefore achieve the highest possible returns with an investment in securities.

Theoretically, very high returns are possible on the stock exchange. In practice, however, the following unfortunately also applies: the more profit is possible with an investment, the higher the risk. So it depends on the right mix of investments. And it should look like you can get decent returns but still sleep well. In other words, you should test your own risk tolerance before venturing on the stock market.

Bonds: With this you ensure regular income

When investing in the stock market, you shouldn't put everything on one card. As a rule, investors therefore distribute their assets across two asset classes: bonds and stocks. Similar to a savings book or a fixed-term deposit, bonds ensure regular interest income.

In contrast to savings accounts or fixed deposits, bonds often offer more interest and can be bought and sold on the stock exchange on a daily basis. While savings accounts are very easy to understand (deposit money, collect interest, the bank takes care of the rest), as an investor you have to deal with several aspects when it comes to bonds: Which bonds offer which returns? At what term? With what credit ratings? Sounds complicated at first. But one after the other ...

This is how bonds work

The basic principle of a bond is quite simple: a debtor lends money to a creditor. In return, the debtor receives a receipt from the borrower for the amount borrowed and regularly pays interest. The receipt shows how much money was borrowed (the nominal value), how much the interest is on it (the nominal interest), when it will be paid and when the borrowed money must be repaid (due date). Such receipts are nothing more than bonds (also called bonds or notes). The time between today and the due date is called the remaining term.

This is how the yield on a bond is calculated

The return is calculated from the nominal interest rate, the price of the bond and the remaining term over which the interest income is distributed. Example: Suppose you buy bonds for 1,000 euros with a nominal interest rate of three percent. The bond has a term of five years and you pay 100 percent of the nominal value, i.e. 1,000 euros. If you held the bond for five years, you would get three percent interest for five years and the nominal value back on the due date, a total of 1,150 euros. In this case, the annual return would be three percent.

The credit rating and the risk of getting your money back

Oh yes, don't forget - the same applies to bonds: the higher the return, the greater the risk. With bonds, the main risk is that the debtor pays the promised interest on time and pays you, as the bond owner, the full amount of the bond on the due date.

You can see how high the probability of default is by looking at the debtor's creditworthiness. A bad credit rating means a high probability of default. For many bonds, credit ratings are calculated by rating agencies such as Fitch, Standard & Poors or Moody's. The valuation metrics are similar. What they have in common is that a triple A stands for the highest creditworthiness.

Rule of thumb: the higher a debtor's credit rating, the less interest he usually has to pay. Borrowers with poor credit ratings, on the other hand, have to offer interest premiums in order to sell their bonds. The effect: Investors can make the most money with bonds from poorly solvent borrowers, but run the highest risk of losing their money. The same is true the other way round. As you can see, security always costs returns.

When you buy shares, you become a partner in a company

You can also use stocks to ensure that money flows into your account on a regular basis. Because most companies pay their shareholders so-called dividends, which are profit-sharing. However, companies are not required to pay dividends. You can also invest the profit back into the company. Or if there is no profit, they can skip dividend payments. A fundamental difference to bonds becomes apparent here: By buying shares, you are not lending any money to the company that issued the shares, but you are buying shares in the company directly. You become a partner, a shareholder.

Another important difference to bonds: stocks have no term limit. While bonds are always repaid at 100 percent of their nominal value at the end of their term, the price (also called price) of stocks is determined solely by supply and demand on the stock exchange. Theoretically, the value of a share can increase a hundredfold or even a thousandfold. There are no limits to this - other than the expectation of potential buyers willing to pay a certain price for a stock. This chance that the price of a share will multiply is of course also a risk: Share prices can fluctuate very strongly - even downwards, a total loss is possible. An investment in stocks is usually much more risky than an investment in bonds.

You can easily diversify your capital with stocks, bonds and mixed funds

So the basic principles of stocks and bonds aren't all that complicated. The challenge is to make the right selection of securities so that you can increase your invested capital sufficiently and minimize the investment risk as much as possible. The solution to this problem is mutual funds. There are pure equity funds, bond funds and also mixed funds that invest in both bonds and stocks. All funds generally spread their capital across a wide variety of securities.

The spread over many different securities has the disadvantage that strong price increases of a single security do not have as much effect in the fund compared to direct investments, but conversely this effect also acts as risk protection: Price losses of one security can be caused by price gains of others in the fund included title. As a fund investor, you are not fundamentally immune to losses. The probability of a total loss is relatively low with investment funds.

More security with diversification across different funds

The same applies to funds: you have to make the right choice. There are several thousand investment funds in Germany, including, for example, equity funds that invest exclusively in company shares in certain sectors. Such sector funds, as required by law, also spread their capital across several different stocks. However, since the share prices of companies that are active in the same industry tend to develop similarly, the spread and thus also the security effect is significantly lower than with funds that distribute their capital across many different industries.

The MLP asset manager package as a set-up aid for students

So the challenge is to get a mix of funds that is well managed and that suits you and your personal risk profile. One solution for this is the MLP asset manager package.MLP offers a quality-checked pre-selection of experienced asset managers, each of whom invests widely. Your advantage: You let investment professionals work for you who, thanks to their knowledge of the market, can take advantage of opportunities early on and better cushion possible fluctuations in the international capital markets.

Another advantage: You can get involved for as little as 50 euros a month, which are invested in five funds. So you can spread your capital over many securities right from the start with a relatively small amount of money. With individual direct investments in stocks and bonds, that would not be possible for you with such amounts. The asset manager package is therefore particularly suitable if you are just starting to build up assets or want to do something for your financial future without great effort. By the way: Instead of a savings plan, entry is also possible with a one-off sum of 2,500 euros or more.

Further information

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