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Created on 02.08.2018

How does investment work?

Everyone is familiar with savings accounts: we lend our money to the bank and receive interest in return. That’s easy to understand. Unfortunately, interest rates have been low for some time. One alternative is to invest your money.

Investment means making your money available to a fund manager who manages it according to the chosen strategy. Investors generally receive something back in return. The return and risk may be higher or lower depending on the investment strategy adopted. Whatever you decide, there are a few key principles to bear in mind:

  • The higher the return on an investment – in other words, the anticipated yield – the greater the risk, and vice versa.
  • We can reduce the risk by distributing money across several investment instruments, such as various equities, for example, in other words through diversification.
  • If you decide to only invest your money in the short term, you should assume low to zero risk. A longer investment horizon allows you to assume a higher level of risk depending on your risk appetite.

You should consider the following questions before investing – ideally with your customer advisor:

How much can you invest?

Regular investments can be made starting with small amounts of money. However, you must ensure that you will not need this money in the near future.

What type of investor are you?

Risk capacity is determined based on your personal financial situation. For this reason, your advisor will ask you questions about your current personal and professional situation, your annual income, your savings, your financial commitments and your plans for the future.

Your risk appetite is determined based on your personal attitude and feelings about risk and opportunity. In contrast to the assessment of risk capacity, which is based on objective criteria, risk appetite depends heavily on your personality and attitude.

To determine your personal investor profile, in other words a combination of risk capacity and appetite, a personal consultation with a customer advisor may be helpful.

What type of investment is most suitable for you?

Your investor profile, together with your investment horizon, determine your investment strategy and the risks and opportunities involved. For example, if you have a longer investment horizon and higher risk capacity and appetite, you can include a higher proportion of equities in your portfolio than if you wish to assume low risks.

So if you know how much money you can afford to invest without having to worry about it, how long your investment horizon is and how you feel about risk, you can start investing. For example, if you’re investing for the first time or wish to invest mainly smaller amounts, funds are ideal.

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