Investing

People have different attitudes towards risk. Since investment always involves risks, you should think about how much risk you are willing to tolerate.

Ideally, you want to earn as much as possible, while taking on as little risk as you can. It’s good to keep in mind, though, that risk and return almost always go hand in hand: the higher the expected return, the higher the risk. The same logic also applies the other way around: lower risk means safer investments but it also comes with a lower expected return.

There is a general perception that profitable investments always call for successful market timing and skilled selection of individual investment objects.

The value variations of different asset classes will balance each other out as the market situation fluctuates. The same outcome is sought with regular saving, where you make a regular investment in both market upswings and downswings. Allocating investments into different asset classes or spreading them out over a period of time is called diversification.

Up to 90 per cent of the differences in the long-term profits of investment portfolios derive from differences in the weighting of asset classes. Therefore the choice of individual securities or timing of individual investments will not have a significant impact on the long-term return on a diversified investment portfolio. Your most important investment decision is the choice of the asset class weighting.

Even small investments can be diversified effectively by investing in investment funds or investment bonds. These also enable you to have a global diversification in your portfolio.

If you are a long-term saver, you do not need to change the diversification you have chosen due to short-term fluctuations on the market. Rises and falls in prices will, however, alter your portfolio’s diversification in the course of time.

It is worthwhile to regularly check the allocation of your different investments and adjust the weightings of the fixed income and equity investments to your own targets. This rebalancing will steer you to sell shares when their prices are high and to buy when their prices are low.