SHARES & FUNDS
Shares & Funds as an Investment
SHARES
Starting with the speculation on tulip bulbs, shares developed a few hundred years later. The goal of stock exchanges was and still is to provide companies with capital for research and development, for example, and in return to give these investors a share in the company’s profits. If the value of the enterprise rises thus by meaningful investments or good sales figures, also the value of the share rises, since this represents a part of the enterprise. Shares are still one of the best known and most popular investment assets. For over one hundred years, shares have also served as an object of speculation. Due to technological improvement especially in the last 50 years, shares have become very tradable. In the past, notes were thrown around on the trading floor or punch cards were used to calculate the prices of shares. Today, thanks to the Internet, any person of legal age can trade stocks. No one has to call a broker anymore to initiate buy or sell orders.
FUNDS
A mutual fund collects money from investors. This capital is then invested by the fund manager in the financial markets on behalf of the investors. The great advantage of a fund is that it spreads risk. It invests not only in one stock (equity fund), in one immoblie (real estate fund) or in one bond (bond fund), i.e. what investors should avoid at all costs, but in many. With an equity fund, investors can benefit from stock appreciation and dividend payments. There are funds for every type of investor, from the extremely risk-averse to the risk-averse. A special investment variant are funds of funds, where in different funds are invested or hedge funds. Hedge funds have the special feature that they can invest in really everything that is tradable on the markets. Hedge fund managers can speculate on a falling orange price but also invest in government bonds or buy up entire companies, break them up and sell the individual divisions at a profit. There are hardly any limits here. Sometimes, therefore, hedge funds are also referred to in the media as locusts.
ANNUAL ROI
INVESTMENT PERIOD
INVESTOR GROUP
In the past decades, individual shares or indices have achieved average annual returns of 8% to 16%. Indices such as the market-wide S&P500, the technological-heavy NASDAQ or the MSCI World Index are suitable as a guide to determine performance. Costs arise on the one hand through a management fee, spreads or commissions.
Shares and funds should generally be seen as a long-term investment. Especially in difficult market situations or a stock crash, sitting out and waiting can be a good decision. When the crash is coming to an end and a bottom becomes apparent, it makes sense to increase one’s stock holdings. Investors should plan for at least five to seven years here.
These investment classes are best for a long-term oriented investment. If the investor wants to build up a passive income through dividends, shares with a high dividend payout are definitely a possibility. In this case, however, the increase in value of the security is often lower. A certain expertise and sufficient capital are required here.
UP TO ANNUAL R.O.I.
Disadvantages of
Shares & Funds
HIGH RISK
FLUCTUATION IN MARKET PRICE
LIMITED CONTROL
If a stock company or a fund company has to file for insolvency, then this investment is almost certainly lost. Some companies use fanciful calculations for quarterly earnings and you can’t always tell if the company’s numbers are accurate. Knowledge about the company can minimize an investor’s risk.
Stocks and funds are subject to certain market volatility, i.e. regularly recurring upward and downward movements. In the case of funds, these volatilities are usually lower than in the case of strongly news-driven shares. As an investor, you should be prepared for this and have good nerves.
Stocks can rise or fall. Sometimes a share falls when quarterly results are good, although this seems illogical. As a stockholder, you have to be able to rely on the correctness of the company balance sheets to avoid any nasty surprises. In the case of funds, of course, you can’t tell the fund manager which companies to invest in.
Advantages of
Shares & Funds
DIVIDEND CLAIM
BONUS SHARES
LIQUIDITY
STOCK SPLIT
APPROVED INVESTMENT
There are shares with particularly high dividend yields with which you can build up a passive income. Dividends are profit distributions to shareholders. As an investor, it is important to have these shares in your securities account at least one day before the company’s balance sheet is published so that you are eligible for the profit distribution.
Not all stock corporations pay a dividend, which is why you should carefully research where the most profitable pearls among the dividend stars are hiding. The dividend yield can reach up to 12% and is paid out to shareholders by the companies on a quarterly basis.
As an employee of a listed company, you are sometimes allotted company shares as a bonus. This increases motivation and the sense of belonging. At the same time, it is a very attractive way to enrich your portfolio with shares.
The stock market is one of the most liquid markets in the world. For penny stocks, this is lower than for blue chips. Additionally, it is very easy to trade stocks on the stock market and you can turn your investments into cash very quickly.
A stock split or capital increase has the advantage that the stock becomes visually cheaper and thus more attractive to other investors, which then causes the share price to rise due to increased demand. The opposite is the reverse split, in which shares are made scarcer by the company.
Investments in shares or funds have been an important basic building block of most investors, savers or investors for many decades. Many state pension funds and insurance companies use stock investments to ensure their own business model. Without equity investments, there would be no pension funds in many countries.
A personal note
Large corporations spend enormous sums on market research, advertising, analysts and other professionals in their field and will always try to take advantage of market situations. Even in difficult times, most international companies will find solutions to at least balance the inlation. Corporations like Alphabet, Apple, Facebook, Amazon or Daimler, VW and Bayer are already represented in many different divisions, even if a division does not run so well, others will secure the company.
​If you have additional interest in the market, you can of course also make a great profit within a short time with smaller companies that pursue a groundbreaking invention or a completely new concept. However, it is also important here to create diversification within the portfolio so as not to rely on forced or panic selling. Furthermore, it results in great investment opportunities, which can generate a stable return in the long term.
LINKS, PARTNER & PRODUCTS
In the following section, we would like to introduce partners, products and links to providers with whom we or trusted people have had good experiences and who offer sometimes unusual solutions.
PLEASE NOTE:
From some of the companies listed here we receive a commission. AF-Intermediary is not allowed to give investment advice. All actions are your personal responsibility.