By Henrike Hein, Feb. 3, 2023
Is investing in stocks safe?
If you want transparency in your own investments, you have a lot of work to do to keep track of funds with more than 1,000 assets. Stock investments, on the other hand, are considered risky and speculative. But are they?
Shares are interests in companies. The price of a share is determined by the current price. If the price is high, the share is expensive. If the share was bought at a low price and sold at a high price, a profit is made. Because the price of shares fluctuates constantly, they are a high-risk investment. The price depends on the company's success or how it is perceived, the market or competitive situation and the general economic or political situation.
Shares can fluctuate in value
When investing in stocks, consider the following:
- Price fluctuations: Share prices are subject to strong fluctuations, they can fall and even lead to the complete loss of the investment amount. However, share prices can also also rise enormously.
- Uncertainty The possible dividends are as uncertain as the share price development. Therefore, a fixed return cannot be expected.
- Long-term investment horizon: In order to benefit from a long-term positive price development and to be able to balance out fluctuations, the invested money should be invested for the long term. The money should be expendable so that the shares do not have to be sold at a loss in possible crisis phases.
Opportunities, transparency and participation
On the other hand, there are also enormous advantages. Investors benefit from the following special features of equity investments:
- Inflation compensation: Stocks are real assets and can protect well against inflation, as companies can pass on rising prices their final prices.
- Dividends: In addition to price increases, dividends can be distributed, which benefit the investors.
- Tradable: Shares can be sold on the stock exchange at any time so that the capital does not have to be tied up permanently.
- Participation: Shares also offer investors with small capital the opportunity to participate in the company. Shareholders can exercise their right of co-determination at the Annual General Meeting and benefit from their right to profit participation.
- Control & Transparency: In contrast to funds, which sometimes contain several thousand stocks and are constantly changing, investments in individual stocks are transparent. Your money can therefore be invested specifically in the sectors or companies that you actually want to support. Consistently sustainable investments are thus made possible.
In recent decades, shares have been lucrative long-term investments.
To minimize the risks, a good investment strategy is important, ie:
- Diversify broadly and minimize risk
- Invest for the long term and wait for crises
- Only invest money that is not needed for the time being
- Avoid greenwashing
- Focusing on sustainability to generate long-term profits with sustainable companies
Since stock investments are transparent, but also involve certain risks, we have developed an algorithm that compiles equity portfolios based on ambitious ambitious sustainability criteria and then optimizes them for risk-return optimized. This means that even beginners can invest in shares and benefit from the automated implementation of the investment strategy.