Exploring different ways you as an expat can Invest your first 1000 Euros in Germany
Okay, let me paint a picture. You have finally made it to Germany. For study or work, regardless of the reason, you are now here in this great foreign country, to kickstart a new phase of your life. This is the time you rethink some things in life. This is a new chapter, and you want to start off with a clean slate. From my own experience, I tell you that this is the best time to start doing something new. One such thing I started doing was Investing.
Honestly, why wouldn’t you start investing!?
Investing is a really smart way of putting your money to work and build wealth in the long run. Otherwise, your money is just going to be sitting idle in a savings account and lose its value over time because of inflation.
Especially if you are an expat, investing money makes a lot of sense! You are in a new country, and moving countries by itself is quite expensive. If you are from a middle class financial background like I was, you know how important it is to maintain your finances. You are always on a budget! And the smartest way to move out of this budgeted life would be through investing.
Let’s say you have settled in Germany after arriving. You have found a place to live, sorted out the formalities, all the basic necessities. After all the expenses, let us assume that you have a 1000 Euros left. Now you can do two things with this 1000 Euros that is remaining. You could spend some of it on a night out and put the rest in your savings account. Or, you can think about investing this 1000 Euros.
Hoping you chose the latter, let us move on to different ways you can invest these 1000 Euros. This is how I do it!
How to Invest Your 1000 Euros in Germany?
Of course the question by itself is vague, and the situation is very contextual. Not everyone may have 1000 Euros exactly to invest. But let us take this amount as an example and explore ways in which we can put this to use.
What can you do with a 1000 Euros? Of course you can’t buy real estate. Buying ounces of gold does not exactly make sense for students either. You could think of putting your money in some sort of a fixed investment in a bank. However, you are simply making a real loss in this scenario. The interest rates the banks will pay you will be over taken by the inflation rate, and your money will be depreciating in value with time. This is why you need to broaden your horizon to Investment tools. I am talking about Stocks and ETFs!
Stocks and ETFs: Should you Invest your first 1000 Euros here?
In brief, YES. Stocks and ETFs are freely traded investment tools which fluctuate in price. Its a convenient tool that puts your money to work, grows in value over time and gives you a solid return. Investing in Stocks and ETFs is so easy nowadays. If you want to start investing in Stocks and ETFs in Germany, the best way to do that is by opening a depot with Scalable Capital. You can read the step by step explanation of how to open your depot with Scalable Capital here.
Now there is an important distinction to learn about here. Many confuse betweent the act of trading and investing. Speculating on the fluctuation of prices and trying to make profits from that is called trading, and I would not really recommend you to do that. Especially with your first 1000 Euros. Investing is a more passive approach, where you consistently put money into stocks and ETFs and wait for it to grow in value. Investing is playing the long game, for more guaranteed returns in the future.
So if you are looking to double your 1000 Euros in a matter of months, Investing in Stocks and ETFs may not be right for you.
You have identified an investment tool that is right for you, but what about approaching the investments? How do you decide on the strategy you are going to follow for investing regularly? How much in stocks, and how much in ETFs? Well, here is a simple thing I do, I look at RISKS.
Categorizing Investments based on Risk:
Investments always comes with risk. By risk, I mean the chances that you make a loss on your investment. Therefore, it is very important that you make your investment decisions taking the ‘risk factor’ into account. Here is how you can strategize your investments based on how much risk you are willing to take.
a) Conservative Risk Approach:
A conservative approach is largely risk averse. You are not willing to take any risks with your investments. For most beginner, taking this approach makes sense. In this case, I would suggest you to invest your entire 1000 Euros into ETFs. Why ETFs you ask?
ETFs are great investment tools which help you invest in a risk-minimising way. When you invest in ETFs, you are not just investing in a single company’s stock but a collection of company stocks. This is a smart way to negate risk. Investing in an ETF makes sure that a single company’s poor performance on the market does not affect your money. It is rare that the entire market’s value will plummet at the same time, thus making ETFs less vulnerable to risks.
For example, what I did was invest 1000 Euros in an ETF like MSCI World. This is an ETF that covers 1600 companies across 23 developed nations. So buying an ETF in MSCI World buys you a small percentage of 1600 companies all over the world. How smart is that!?
So remember, a conservative approach = 1000 Euros fully in ETFs.
b) Moderate Risk Approach:
It is always nice to find a middle ground. In this scenario, taking a moderate risk approach means equally diversifying your investments between Stocks and ETFs. You can invest 50% of your amount in Stocks and 50% in ETFs.
This is a nice strategy for those who have their basics about the stock market brushed up. As we discussed, investing in stocks are slightly riskier and the moderate approach gives a nice overall balance to your investments.
Under this strategy, there is a way to decide which stocks you want to invest in. We will look more into it later!
So remember, a moderate risk approach = 500 Euros in Stocks + 500 Euros in ETFs
c) High Risk Approach:
By ‘high risk’ we do not mean going all in on the riskiest investment. As that would not be a sensible thing to do. A high risk approach would be making your investments in such a way that you are open to take calculated risks.
Under this strategy, you should look to diversify your investments more towards another tool that belongs to the risk category. Along with ETFs & Stocks, investing in Cryptocurrencies would be one such investment. It is really important that you calculate risks and divide your investments proportionately. In this case, 50% in ETFs – 30% in Stocks – 20% in Crypto Currency would be a sensible thing to do.
So remember, a high risk approach = 500 Euros in ETFs + 300 Euros in Stocks + 200 Euros in Crypto currencies.
Pro tip: An easy way to invest in ETF’s consistently is through a Savings Plan on Scalable Capital. You can start an investment plan for as low as 25 Euros per month. Read more on our blog with a step by step guide on setting up your savings plan with Scalable capital here!
How to choose Stocks and ETFs to Invest?
This is another area where you need to make a decision. You may have figured out a risk based strategy, but how do you decide on what stocks and ETFs to buy? Well, I follow another simple strategy. I categorize stocks and ETFs into two categories based on the motive of investing.
a) Cashflow Investing
Cashflow investing means a strategy where you invest in companies that pay you dividends. The main motive behind cashflow investing strategy is to put your money to work and earn returns regularly through dividends.
You can invest in both Stocks and ETFs that pay you dividends. Yes! There are many companies that will pay you monthly dividends. This is an important aspect for the companies as they are looking to develop trust with their investors. Paying regular dividends helps them in that regard.
I personally followed Cashflow Investing strategy and invested in a couple of dividend paying stocks such as Main Street Capial and SL Green Realty. This allowed me to earn dividends everymonth. I also have the full freedom to decide what to do with these dividends. One could re-invest into the stocks or take these dividends from the depot and move it to a current account for spending more. You are able to do this if you invest through a German broker, because they deduct all the taxes on dividends by themselves. So there you go, another reason for you to open your depot with Scalable Capital now!
b) Growth Investing
Another strategy you can follow in this regard is a Growth based investing. You buy stocks and ETFs that have massive growth potential, but do not pay out dividends. These investments do not give you any profits meanwhile, and you only realize the growth in value when you sell.
I am not a very big fan of growth investing because I seek more active returns. Selling a stock with growth potential means you are missing out on whatever growth it can achieve in the future. However, it is perfectly suited to new investors who are getting started.
For instance, I bought shares in TESLA because it is a company with great growth potential. Tesla’s stock has increased by more than 4000% since it made its debut IPO. This is an approach you can take if you just want to make regular investments on a stock which you are planning to sell in the long run.
And that is it!
There you have it, this is the strategy I used to invest my first 1000 Euros in Germany. I break down my investment decisions into different approaches, based on risk and based on income. I believe it is important to have such a strategy because it allows you to retain complete control over your investment decisions.
Of course, this is not ‘my financial advice’ to you. These are merely my opinions and the way I do things based off my own experience. It is important that you do the due diligence before making any investment decision with your money!
If you want to start investing in Germany, I once again remind you of the awesome broker that is Scalable Capital!
Lookout for more blogs like these to help expats to manage their finances in Germany!
I have personally been a fan of growth investing. It helps stay invested for the Long Run. Plus in India, Dividend Returns are Not good. They are actually paid Out from your own Investments. However the Markets in Germany seem to be different.
Thanks Bharat! This article is quite helpful. Quantifying it to the ‘first €1000’ is definitely a good approach.