What is the stock curve from a portfolio

In times of permanently low interest rates, more and more people are concerned with investing in securities. However, many do not know which securities to choose and what to look out for.

ETFs, funds or stocks - the selection of securities is huge. However, it is not just the selection of the appropriate products that is relevant for an investment. Before making the actual investment, it is advisable to first define the goal, determine your own risk tolerance and then build up a well-mixed portfolio. To take a first step towards your own portfolio, it can help to clarify two things:

  • What is the goal of my investment: Do I want to save in the long term or only park money for a short time?
  • What risk am I willing to take?

Anyone who has answered these questions for themselves will find it easier to make the following decisions, such as the selection of suitable asset classes or products.

The goal determines the way. The investment topic can be reduced to this simplified formula. It makes a considerable difference whether I want to invest money for a few years because then, for example, a larger expense is pending. Or whether I will start building up a private pension plan at the beginning of my professional career. In the first case, the investment decision is more likely to focus on preserving capital than on the highest possible return. In the second case, asset classes can also be used that offer a better return than a fixed-term deposit account - but this is also associated with an increased risk.

Only one thing is certain: on the stock markets there is always the risk that there may be high losses within a short period of time. That may be one reason why the majority of Germans shy away from investing in dividend stocks. In 2019, around 15% in Germany were invested in stocks or equity funds. In the USA the rate is about twice as high. A look into the past can help to better assess one's own willingness to take risks.

Here is an example:Financial crisis. After the beginning of 2007, the German share index (DAX) rose to a good 8,000 points by the end of the year - in March 2009, however, it was only just under 3,700 points. But as early as March 2013, the stock market barometer cracked the 8,000 mark again.

Of course, past price developments cannot provide any conclusions about future developments. Nevertheless, it can be seen from previous ups and downs on the stock market whether investors want to take the risk of price losses - and, in the worst case, could sit out. Because: The willingness to take risks also includes investing only the money that can be waived in the planned investment period. It is therefore advisable to always keep a financial cushion for unforeseen expenses in addition to the financial investment. In addition, the risk of your own investments should be chosen so that a good night's sleep is still possible. Anyone who panics at a price drop of 2% should possibly rethink their activity on the stock market.

Unfortunately, the egg-laying woolly milk pig of investment products has not yet been invented. What offers security tends to have low returns. It is therefore advisable to find an individually healthy mix for your own portfolio. In addition to one's own willingness to take risks, general risk aspects should also be decisive. It is worth taking a closer look at the asset classes and the branch and country distribution:

  1. Asset classes, also known as asset classes, provide an order in your own portfolio and classify the various investment opportunities. You can choose from stocks, fixed-income securities such as government bonds, real estate and real estate funds, or commodities such as gold. Putting everything on one card is not necessarily advisable, because if one asset class does not do well, others could possibly compensate for the losses.
  2. Industry sectorsshould also be well distributed in your own depot. For example, an investor who owns a home and several rented apartments should not invest his money exclusively in real estate funds. A crash in house prices would hit all assets at the same time. Diversification is the keyword here too.
  3. For the same reason, investors should too Securities from different countries take into account when making an investment decision. After all, if the German economy is in crisis, that does not automatically have to apply to the Japanese.

The general rule: For investors with a low willingness to take risks, it makes sense to have a higher proportion of fixed-term deposits or bonds in your portfolio. Those who are willing to take risks, on the other hand, can increase the equity component. For security-minded investors, experts recommend a 70:30 breakdown of bonds and stocks. Offensive investors are turning the ratio around. Experienced investors could also be interested in admixtures from real estate, raw materials or private equity.

In the past, private investors liked to put their money in so-called Exchange Traded Funds (ETFs). These index funds replicate existing indices one-to-one, be it the DAX, the US stock market barometer Dow Jones or the MSCI World. ETFs are also issued on bonds, commodities and other asset classes. Since, unlike conventional funds, index funds are not actively managed, the costs of buying and managing them are relatively low.

Once an investor has found the appropriate weighting of the asset classes such as bonds and stocks, he should check at least once a year whether his portfolio still corresponds to the original target value. Because if share prices rise sharply, the share portion can suddenly be significantly higher.

An example:An investor invests 3,000 euros in stocks and 7,000 euros in bonds - so it has a ratio of 30:70. After two years, share prices have risen by a total of 35%, but bonds are unchanged. As a result, the equity component is now more than 36%. It can therefore be advisable to take any price gains you have made and invest in bonds. So the ratio originally chosen remains constant.

Tip:When saving for a retirement plan, it may be advisable to gradually shift the shares into bonds a few years before retirement in order to minimize the risk and to guarantee that the capital will be retained for the retirement period.

Building your own portfolio may seem incredibly complicated at first glance. In addition to their money, investors certainly need to invest some work and time looking for information. But with the right preparation, a clear objective and a willingness to take risks that are suitable for you, building the right portfolio is no rocket science.

In order to put together a securities portfolio, you don't necessarily have to invest the same amount of money. Even with small amounts on a regular basis, you can help build your wealth. For example with securities savings plans. You invest in a share, fund or ETF with your specified amount. You can take out savings plans on several securities. At ING Germany, you have the option of setting your own savings plan rate. This is possible from 1 euro. And the best: From April 1st. all ETF savings plans are free of charge! As a customer, you decide how much you want to invest on a regular basis. Either monthly, every other month or quarterly as you like.