Did you know? When you invest money there can be a compound interest effect. If you reinvest your earnings immediately your wealth grows not only linearly but exponentially through the effect. Especially with a long term the effect can significantly boost your return.
What are the best options for investing money?
Which is the best capital investment depends on various individual factors. Among the most popular options are:
Funds
Funds are an investment form in which you can invest in several securities at the same time. You acquire units in the fund and share in the performance proportionally. A fund manager takes on the selection, monitoring and adjustment of the contained securities. The aim is to utilise opportunities, minimise risks and achieve the most attractive return possible for you as an investor.
Opportunities:
Diversification: You invest your money across many investments which lowers risk.
Professional management: Experts handle the investment strategy.
Return potential: Through possible price gains you can achieve an attractive return.
Risks:
Costs: Actively managed funds usually charge higher fees than passive ETFs.
Market risks: Even a broadly diversified fund can lose value in economic fluctuations.
Dependence on management: The return depends strongly on the fund management’s performance.
ETFs
ETFs (exchange‑traded funds) work similarly to classic funds but are passively managed. In doing so an ETF follows the performance of an existing index – without a fund manager intervening. The composition of an ETF is always publicly accessible, because it follows a fixed index. That way your investments are also broadly spread.
Opportunities:
Broad spread: Even with small amounts you can invest in hundreds of stocks and lower your risk.
Low costs: ETFs generally have lower annual management fees than actively managed funds.
Long‑term return: Historically many indices achieve positive performance over several years. Note however that past performance is not an indicator of future performance.
Risks:
Fluctuations: ETFs also fluctuate, so short‑term losses cannot be excluded.
No guarantee: Since ETFs do not pay fixed interest your return depends on the index’s performance.
Shares
Shares are securities with which you acquire part ownership of a company. When you buy a share you become a co‑owner and can benefit from dividends. The value of a share is determined by supply and demand on the market and can change daily.
Nevertheless shares have been among the highest yielding investments for years, which also carry higher risk. Some expertise is therefore required. You should also be comfortable with short‑term price fluctuations.
Opportunities:
Risks:
Price fluctuations: Stock markets react sensitively to economic, political or sector‑specific developments.
Total loss risk: If a company you invested in becomes insolvent you may lose your initial capital.
Property
Currently property is among the investment types considered relatively safe. With this investment form you can earn ongoing returns through rental income or benefit long‑term from capital gains if market value rises.
Compared with other investments property is regarded as low risk and inflation‑resistant. It therefore plays a role in long‑term wealth building and can be part of retirement provision.
Opportunities:
Regular income: Rental income can provide steady earnings over several years.
Value growth potential: In high‑demand locations high returns via price increases are possible.
Inflation protection: Tangible assets like property often retain value even in economically uncertain times.
Risks:
High initial capital: Acquisition usually requires a large equity share.
Liquidity risk: Property ties up capital that cannot be released quickly.
Management effort: Letting, maintenance and possible rental defaults can mean effort and extra costs.
Tip: If you want to benefit from the stability of property without buying a house or flat yourself, then property funds or property ETFs may be worth considering to diversify your portfolio.
Bonds
States and companies issue bonds (also known as debt securities) which are fixed‑interest securities with a defined term (often several years) and regular interest payments. Simply put: you lend your money, receive interest and get the capital back at the end of the term.
Bonds are among the more defensive investment types and interest investors who value predictable returns may consider them. You can use the investment to stabilise a portfolio and combine it with other investment types.
Opportunities:
Predictable returns: The regular interest payments offer a reliable income source.
Repayment at end of term: With reputable issuers repayment is regarded as likely.
Wide selection: Depending on risk appetite and investment goal various bonds are available.
Risks:
Current accounts
If you want to invest your money with low risk, the current account with variable interest rates may be an option. You deposit money in a current account at your bank, where you regularly receive interest. Unlike fixed‑term deposits, you can access your funds at any time.
Due to its high flexibility, the current account at your bank is suitable as a short‑term parking spot for emergency savings or as a temporary solution before larger investments. Investors often refer to current accounts as the best risk‑free investment, since the capital is protected by statutory deposit insurance.
Opportunities:
Flexibility: Your money is always accessible in your current account and you remain liquid.
Planning certainty: You receive variable interest on your bank’s current account.
Deposit insurance: Balances are protected within the EU up to €100,000 per bank and per person.
Risks:
Low interest: Compared to other investments, the interest is usually low.
Interest rate fluctuations: The bank can adjust the interest rate at any time.
No inflation protection: If interest is lower than the inflation rate, your money loses purchasing power.
Fixed‑term deposits
If you choose fixed‑term deposits as an investment type, you deposit a certain amount with a bank for a fixed term at a fixed interest rate. During this time, however, you can’t access your money. In return, you receive predictable interest over the entire term, regardless of developments in the capital market.
A fixed‑term deposit account is therefore suitable for investors who won’t need their capital in the coming years and want to park it without market fluctuations.
Opportunities:
Fixed interest: You know from the beginning how much interest you’ll receive on your deposit.
Stability: Your capital is not affected by market fluctuations.
Deposit protection: Within the EU, the deposit insurance of €100,000 per person and per bank applies not only to current accounts but also to fixed‑term deposits.
Risks:
No flexibility: You cannot access your money during the term.
Inflation risk: If inflation rises, the real return on your investment decreases.
Limited earning potential: Compared to riskier investments, interest on fixed‑term deposits is often low.
Crypto
Cryptocurrencies are decentralised virtual currencies, including Bitcoin and Ethereum. Coins and tokens are based on a blockchain and use cryptographic methods to secure transactions, generate new units and ensure the integrity of the network. They exist purely digitally and are independent of the banking system and traditional currencies (fiat money). Investors who choose cryptocurrencies are opting for a modern investment form with high growth potential but also greater risk, since coins and tokens are volatile.
Opportunities:
High return potential: Early investments in established coins and tokens have delivered remarkable profits in the past (Note: Past performance is not an indicator of future results).
Independence: Crypto assets are decentralised and freely tradable.
Innovation: New applications are constantly emerging with technologies like smart contracts, DeFi or NFTs.
Risks:
Price fluctuations: The market is very volatile, and short‑term crashes are common.
Regulatory uncertainty: Legal frameworks can change quickly, affecting trading or custody.
Value protection: Unlike traditional currencies, the value is not backed by government institutions.
Did you know? Cryptocurrencies can be an exciting part of an investment strategy and contribute specifically to diversifying your portfolio. For retirement planning or secure wealth building, you should base your strategy on multiple pillars and combine it with other investment forms.
At Bitpanda, you can start investing in Bitcoin, Ethereum and many other digital assets with small amounts. This allows you to smartly integrate crypto into your overall portfolio.
