A simple yet detailed guide on how to start investing in ETF in Germany. Start your ETF journey with the Scalable Capital App! Invest as an expat from TODAY!
What are ETFs?
Firstly to know what an ETF is, you need to see it as an Exchange-Traded Fund. In Germany, ETFs work like baskets, putting different investments together, which makes buying multiple of them at once easy. These funds become very popular because they’re simple, letting investors access various companies at once. In addition to that, you can buy and sell them anytime during the day, giving you trading flexibility. Additionally, ETFs offer chances to invest in diverse sectors, like technology, finance, or healthcare. In addition to that they also have lower fees, making them a money-saving option. In conclusion, ETFs give you diversity, accessibility, and cost-effectiveness, making them an excellent choice for both beginners and experienced investors.
Why you should start investing in ETF in Germany?
If you’re in Germany, consider investing in ETFs. They are Exchange-Traded Funds, easy to get into, and offer many benefits.
Firstly, ETFs provide diversification. You can invest in companies all at once, while also reducing risk. Moreover, they give access to different sectors, like tech, finance, and healthcare.
Additionally, ETFs are flexible. You can buy or sell them anytime during the day. Furthermore, they have lower fees compared to other investments, saving you money.
On top of that, ETFs are suitable for both beginners and experienced investors. They are simple to understand and execute.
Furthermore, ETFs have a track record of stable growth. Over time, they have the potential to earn you good returns.
To summarize, if you’re in Germany, investing in ETFs is a smart choice. They give you the advantage of spreading your money across different investments, are flexible, cost less, and have the potential for steady growth. So, why wait? Start your ETF investment journey now!
Types of ETFs to invest in Germany!
You can group ETFs in different ways. Firstly, one way is by how they are managed: Passive or Active. Passive ETFs try to copy the performance of a broader index, like the S&P 500 or specific sectors. Active ETFs have portfolio managers who decide which securities to include in the portfolio without aiming for a specific index.
On the other hand, you can classify it based on the nature of the ETF. To simplify, types of ETFs can be decided based on what you are investing in.
Here are the most common types of ETFs in Germany:
- Equity ETFs
- Bond ETFs
- Sector ETFs
- Commodity ETFs
- International ETFs
- Currency ETFs
- Real Estate ETFs
- Dividend ETFs
- Growth ETFs
- Value ETFs
Step by Step guide on Investing in ETF in Germany
Now, let us take a look at the main section of the article. The Step by Step guide on how to start your ETF investment journey. For beginners, you may think that it is complicated. However, it is really simple.
Step 1 : Set your investment goal
To begin your ETF investment journey, it’s crucial to set clear and achievable goals. Having clear goals will guide your decisions and keep you on track. Here’s a step-by-step process to get started:
Firstly, take some time to think about what you want to achieve. Are you looking to save for retirement, build an emergency fund, or grow your wealth for a future purchase?
Next, consider the timeline for each goal. Are you investing for the short-term or long-term? Understanding the time horizon will help you choose appropriate ETFs that align with your objectives.
Step 2 : Plan your risk tolerance
Now, think about your risk tolerance. How comfortable are you with risks in the market? High-risk investments may offer higher returns, but they also come with more significant volatility. On the other hand, low-risk investments tend to be more stable but may offer lower returns. Knowing your risk tolerance will help you select ETFs that match your comfort level.
Furthermore, consider the amount of money you can invest. Determine how much you can afford to set aside for your ETF portfolio. Whether it’s a one-time lump sum or regular contributions, having a budget in mind will guide your investment decisions.
Step 3 : Choose the right online broker to invest in ETF in Germany
Following planning your risk tolerance, selecting the right online broker is a crucial step in your ETF investment journey. A reliable and user-friendly platform can make the entire process smoother. Here’s a step-by-step guide to help you choose the best online broker:
- First, research online brokers. Check fees, account types, and customer reviews to narrow choices.
- Next, ensure the broker is regulated in Germany for added security.
- Examine broker fees. Watch for account fees, transaction fees, or ETF commissions. Choose clear fees and competitive prices.
- Evaluate the user interface. A user-friendly platform with helpful tools makes investing easier. Look for ETF research, portfolio tracking, and performance analysis features.
- Consider customer support. Reliable service is crucial for questions or issues.
In my personal opinion, I have found Scalable Capital to be a standout broker among all options. To sum up, it is simply the best broker to start your investment journey in Germany. It stands out on all the above mentioned factors. In fact I have made a detailed review of Scalable Capital in 2023 in this blog post below, do check it out!
Step 4 : Open your Depot Account with Scalable Capital
To embark on your investment journey in Germany, the first step is to establish a Depot account. Now, when it comes to selecting the best broker for this purpose, Scalable Capital stands out as an excellent choice. In this video, we’ll walk you through the process of opening your depot with Scalable Capital, ensuring you have a seamless experience from start to finish! So, let’s dive right in and discover how you can get started with your Depot account today!
Step 5 : How to Search for the right ETF in Germany?
Subsequently after opening your depot, you should start researching on what ETF to choose. But the question of ‘where to search these ETFs?’ is a common one.
I usually recommend JustETF as a website for reference. It is a really simple platform where you can browse for ETFs and also find some insights. Here is an image for reference:
Step 6 : How to analyze & choose the BEST ETF in Germany?
This is where Benchmark Indexes are useful. Firstly, let’s understand what benchmark indexes are. These are like measuring sticks used to gauge the performance of a group of companies. Two well-known benchmark indexes are MSCI World and S&P 500.
The MSCI World includes around 1,600 companies from developed countries worldwide. These companies come from various industries, such as technology, finance, healthcare, and more. For instance, you might find tech giants like Apple or Microsoft in this index, along with financial institutions like JPMorgan Chase.
On the other hand, the S&P 500 is a benchmark index with around 500 large U.S. companies. It encompasses well-known brands like Amazon, Google, and Coca-Cola, among others. Industries represented in the S&P 500 include technology, healthcare, consumer goods, and finance.
Both these indexes provide a broad view of the global and U.S. markets, respectively, making them popular choices for investors seeking diversification.
The MSCI World includes companies from approximately 23 developed countries, while the S&P 500 consists of firms solely from the United States.
In the MSCI World, you’ll find a wide array of industries. Around 20% of the companies belong to the technology sector, making it a significant part of the index. Other prominent sectors include finance, healthcare, and consumer goods.
As for the S&P 500, around 28% of its companies fall under the technology category, with finance and healthcare sectors also featuring prominently.
Step 7 : Open the Scalable Capital App to search for ETFs in Germany
In the Scalable Capital App, you can search any ETFs in Germany. Do keep an eye out for the ‘P’ symbol next to a fund once you search it up. This indicates that the fund is a PRIME Partner of Scalable Capital. Invesco, ishares, and Extrackers are the PRIME partners of Scalable Capital. You have the choice of 600+ ETFs to invest in.
Here is a FREE Tip from my side! If you are a beginner, you can go with a popular ETF choice like CORE MSCI World. It would be a safe and good standard ETF you can start investing with.
Step 8: Authentication of the ETF
Once you choose the ETF check for the ISIN & WKN numbers to verify if the ETFs are authentic. An International Securities Identification Number (ISIN) is a 12-digit code that identifies a specific security. The organization that allocates ISINs in any particular country is the country’s respective National Numbering Agency (NNA). Similarly, The WKN (“Wertpapierkennnummer”) was the German six-digit code for the ID of a security. However, it has been widely replaced by the internationally used identification ISIN.
Step 9: Finalize your investment!
Finally, click ‘kaufen’ and enter the amount you want to invest!
By simply clicking the highlighted button below, you can create a Savings Plan.
Congratulations! You’ve taken the first steps to start your investing journey in these simple steps. Investing in ETFs in Germany offers a relatively risk-free approach to grow your savings, especially with a savings plan that makes it a regular habit.
Furthermore, it is essential to highlight that my recommendation of ETFs as the best investment tool is based on my personal experience, and I am not a financial advisor. It’s crucial to conduct your research and find the investment tool that best suits your unique financial goals and circumstances. Best of luck on your investing journey!