Conservative investors are increasingly turning to low-risk investments. However, due to the low interest rates, it is currently not worth investing money in a call money account, savings book or fixed-term deposit. It should always be borne in mind that this significantly reduces the real return. In the following, we will explain how you can still invest money conservatively and protected against inflation using our approach of a conservative investment strategy.
Step 1: Build and hold nest egg
As with any investment strategy, building up or maintaining a liquidity reserve is extremely important. For the conservative approach, I recommend a nest egg of 1 to 2 net salaries. This money should be in a call money account in order to be able to access the money quickly in emergency situations.
Step 2: Investing in low-risk investment funds
Any money that goes beyond the nest egg should be invested. For conservative investors, the secure basis of the investment should consist of real estate funds. Real estate funds offer a relatively safe way to invest indirectly in real estate. An indirect investment option are open-ended real estate funds: Here, professional fund managers collect the money in order to then invest it in several properties. We recommend open real estate funds that own several properties across Europe or worldwide and invest primarily in hotels, commercial properties or shopping centers. The expected returns here can be between 2 and 4%. 50% to 70% of the assets of conservative investors should be invested in real estate funds.
Investing money conservatively despite low interest rates
The persistently low interest rates make savings accounts and overnight money less attractive to investors. It has to be rethought and alternative investment options have to be used.
Step 3: Monthly investments in mixed funds
In order to improve the average return with a medium investment horizon, we recommend conservative investors to build up their investment portfolio with mixed funds with regular monthly savings plans.
Mixed funds are investment funds that have a limited share of shares. The mixed fund can also invest in other asset classes: bonds, money market stocks, commodities, precious metals and real estate. Thus, this type of fund combines growth opportunities from riskier investments such as stocks with income from lower risk investments such as bonds. Larger amounts of money should flow into the portfolio over a period of at least 10 months.
Step 4: Regular shifts to minimize risk
In order to be able to maintain the conservative orientation despite equity-heavy funds, it is advisable to shift the mixed funds strategically into real estate funds and / or money market funds on a regular basis. Optional can also be bought in the event of a drop in the market. However, the conservative strategy should always be kept in mind.
Step 5: Don’t forget your private old-age provision as your savings goal
When pursuing medium and long-term savings goals, you shouldn’t neglect your own private old-age provision. Owning your own property is no substitute for a private pension plan. According to the current legal situation in Germany (as of 2019), there are still tax advantages when taking out a private pension plan, which justifies the raison d’être of these products and, taking certain factors into account, proves to be more lucrative than a normal bank savings plan with a term of over 20 years.
We hope that this brief information has given you a good overview of the possibilities of conservative investments. For further information or advice, please contact us without obligation.