26

I have 90,000 EUR and difficulty figuring out what to do with it. This money is in a savings account with an interest rate of only 0.05%. Here in Netherlands, I pay around 600 EUR each year on this money via taxation. So, I am losing quite a lot of money each year.

I also have no debt whatsoever, single, have a company car, and a decent paying job (no, I did not save up this money just by working).

I also have absolutely no knowledge in investing. Honestly, I am hesitant in investing in something what I cannot see (i.e., shares / stocks, etc). The only thing I am looking at the moment is investing in real estate for renting. Renting market in the Netherlands is huge. However, the apartment prices are sky high at the moment. I need at least 130000 EUR to even buy a small studio which I can then rent out for about 600 EUR per month.

Therefore, I am thinking of taking a small mortgage to buy such a studio (with 80-90% of my savings). However, I am afraid because what happens if in 5 years house prices drop, and all that money I earned via renting will be wasted on the fact that I overpaid for the apartment in the first place?

Do you think investing in rental property with a small mortgage is a good (or best) option here?

P.S. I am paying quite a lot of money for rental of apartment I am living now, however I have no desire to buy similar apartment for myself, because it will cost me approximately 300.000 EUR.

  • 21
    Putting 100% of your savings (+ additional money that you will now owe to the bank) into a single investment, of any type, is called being "undiversified". It is advisable not to put 150% of what you own into a single piece of property; your fears are well founded. – Grade 'Eh' Bacon Mar 1 '18 at 13:41
  • 2
    Why not borrow some 250K EUR to buy your own apartment? You could use 50K from the 90K you have. – Rodrigo de Azevedo Mar 1 '18 at 14:06
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    Land lording is also a lot of work - not sure if you factoring that in to your estimations. Are you happy constantly renovating houses/dealing with contractors/agents/tenants etc? Student/studio letting generally carries very high damage to houses with fast turnover of tenant so requires a lot of supervision and work on top of any full time job you have... – Philip Mar 1 '18 at 15:18
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    @user1880405: You indicated you did not own your current home. That is a major escape in Dutch rental law - "I need the rental property for myself" is a valid reason to break existing leases. – MSalters Mar 1 '18 at 15:50
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    @user1880405 A lot of the kind of damage studio tenants often cause isn't cover able by a €1200 deposit: it's things like not spotting leaks until it destroys whole floors/walls/electrics/people below them's ceilings, leaving the heat off when away and bursting all the plumbing etc. At that price point you're basically dealing with people who have never run a house before and make constant expensive mistakes well above any deposit. – Philip Mar 1 '18 at 16:00

16 Answers 16

35

You stated several things in your question that you are afraid of - you are afraid of investing in something you can't "see", afraid that you're buying the rental too high, afraid that you'll be stuck in your apartment.

It sounds like investing in real estate is not going to give you peace. I have no clue about the investment opportunities in the Netherlands, but it sounds like you are very risk averse, which means that you need to find nice, safe, low-risk-investments that will give you enough return to at least cover the 0.67% in tax that you are paying, plus some additional return to make the investment worthwhile within your risk tolerance level. Surely there are government or corporate bond funds that you can invest in that will not give you the same volatility that equities or real estate will.

At the end of the day, don't invest in anything that you can't explain to someone else, at that gives you peace that your investment is safe for your investment horizon.

  • 24
    You used the word "afraid" twice in your question and twice in comments. I am not suggesting investing just to cover taxes - surely you can get 2-3% or better in very safe investments. I am concerned that trying to chase higher returns in riskier investments that you don't fully understand is not going to be good for you if you are constantly worrying that they might not perform as expected. Perhaps you can reduce your fear through education or by experimenting with smaller amounts. – D Stanley Mar 1 '18 at 15:08
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    @user1880405 That's not a particular wise way to approach the problem. First, under a certain amount all bank accounts are guaranteed by the state. Check what this amount is in the netherlands, but it should be around 100k. So you can't lose anything as long as the government honors its promise. 2) The fact that the house is there really doesn't help you. Sure, it's there, but now it's worth 20k and it will take 50 years to get back to 90k. Are you happy with it? Real estate is an investment like anything else and the fact that the house is physically there should not distract you too much – Ant Mar 1 '18 at 20:13
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    @user1880405 Real estate values can definitely change, and are sometimes more volatile than stock prices. I appreciate the comfort in investing in something tangible, but I think you underestimate the work and risk that goes into rental properties. – D Stanley Mar 1 '18 at 20:13
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    The big risk with buy-to-let is that you may get a bad tenant who trashes the apartment, and doesn't pay the rent. When you finally get them evicted, you've lost all the income you were expecting, and you have to pay out to get the apartment refurbished. – Simon B Mar 2 '18 at 23:32
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    @user1880405 In theory, yes. In practice, the sort of people who do that don't have any money. There is no point in suing somebody who has nothing. – Simon B Mar 3 '18 at 22:36
22

It makes sense to avoid share picking, if you're not really familiar with individual companies. But a reasonable alternative is to buy an Exchange-Traded Fund which tracks a whole portfolio of companies. This is basically investing in the economy as a whole. The ETF will generally buy a mix of shares. For instance, an ETF which tracks the EuroStoxx 50 will buy shares of the 50 largest European companies.

There is a small fee (~0.1%) levied for the ETF activities, but this is far less than that of an actively managed fund. And while you do have the risk of a general economic downturn, individual company performances tend to average out.

  • I will look in this more! Would you say this is better long term investment than my 80K + 50K mortgage, which I pay out in ~5 years and then start renting apartment for ~600 eur/month? Hypothetically speaking, if I invest into ETFs, and Euro devaluates or depreciates over time and then I don't have much left. If I invest into real estate in place when rent demand is high, no matter what happens economically I still have my house, where I can at the very least live or rent it out. – user1880405 Mar 1 '18 at 15:31
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    @user1880405: A depreciation of the EUR is an argument in favor of stocks. Those would likely pay out higher EUR dividends, whereas the rent will be contractually agreed and not rise. – MSalters Mar 1 '18 at 15:46
  • Not working, he ruled that one out. An ETF would be similar to shares and he is uncomfortable with that because it is "invisible". – TomTom Mar 1 '18 at 21:20
5

Want to invest in something you can see? I can at least see Microsoft: https://en.wikipedia.org/wiki/Microsoft#/media/File:Microsoft_building_17_front_door.jpg

I can see Nokia: https://en.wikipedia.org/wiki/Nokia#/media/File:Nokia_headquarters_in_Espoo.jpg

In fact, I can see pretty much every reputable company there is, just by googling its name. Yes, the seeing happens via a computer monitor, but I could theoretically visit the place of the company headquarters.

The only two free lunches in investing are low expenses and good diversification. So, pick several (about 20) companies, operating in different fields and different countries, and put equal amounts of money into their stocks. When purchasing these, keep the costs low, which usually means large purchases. That won't be a problem for you, as 90 000 EUR / 20 = 4500 EUR. With 4500 EUR purchases, you are pretty much guaranteed to have low expenses.

Whatever you do, do not put all of your money into one field (such as housing / real estate), one country (such as Netherlands) or even worse, one investment (such as a rental apartment). So, the answer to your question whether you should purchase a rental apartment is quite clear: NO, as it has poor diversification!

When selecting companies, I would prefer companies with reasonable P/E (price to earnings) ratio that have had good growth for a number of years. But if you are a believer of the efficient market hypothesis (EMH), even this shouldn't matter to you, and believing in the EMH, even Tesla (huge P/E, relatively new company) should be as good investment as Hennes & Mauritz (reasonable P/E, good growth for a number of years).

It may make more sense to invest via an ETF to a large collection of companies, but then you cannot see your investment, which was a criterion for you. True, you usually can see the components of the ETF, but you cannot see the ETF itself. And theoretically the composition of the ETF could change to include a company you cannot see even via your computer monitor!

  • 1
    @user1880405 - As an absolute minimum you should invest some of your funds in a government-backed savings bond or Green savings account to cover the tax take from the government. nl.wikipedia.org/wiki/Groene_belegging - Once you've got that sorted at least you won't be losing money annually while you decide what to do with the lump sum – Valorum Mar 2 '18 at 21:45
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    @user1880405 - For someone who's risk-averse, you certainly seem to be attracted to some highly risky investments. Might I suggest you simply buy gold. It tends to appreciate and you can physically keep it in a vault and go and look at it :-) – Valorum Mar 2 '18 at 22:11
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    Gold is an extraordinarily poor investment. Its value changes over time and it has no fundamental return mechanism. Stocks pay dividend, properties pay rent, bonds pay interest, forest grows, but gold... it just IS! It doesn't return anything unless somebody is willing to pay more for it later. Over a 100 year time horizon, even money market investments should return more than gold, being less volatile. – juhist Mar 3 '18 at 8:32
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    You keep repeating "If I have a real estate it stand there no matter what". That's not necessarily true. You can lose a house in a fire, flood, or other adverse weathers; the city that was a bustling economy can now become deserted, rendering your house worthless, unsaleable and unrentable. In some cases, desertions may make the property uninhabitable as wel if crucial services are in disrepair. Vandals or bad tenants may wreck your home, requiring expensive repairs. Purchasing a property is not without risks. Just because the risk seems low, don't think that it won't happen to you. – Lie Ryan Mar 3 '18 at 14:09
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    The three best investment advice anyone could give is to diversify, diversify, and diversify. Putting 100% of your money (or more if you're taking loans) on a single property is a high risk portfolio, even if property price is good and you are getting decent capital gains. – Lie Ryan Mar 3 '18 at 14:18
5

Fellow Dutchman here! Investing in real estate may not be a very good idea in this market coupled with your risk-aversion. It's levering up while also burdening yourself with a lot of headache for a mediocre return on investment after maintenance costs etc. Second: Be careful asking for investment advice from people on the internet, second check everything. Then again, most banks don't give you much better advice.

Things you could look into are diversified mutual funds (beleggingsfondsen) e.g. Multi-asset funds, or credit funds, and/or a selection of equity funds for part of your savings. Like always: diversify and make sure you are familiar with the risk of each product. As a rule of thumb, assume a max loss of 50% for equity funds, 20% for investment grade credit funds. Try to buy plain vanilla products that have few hidden costs. If you like to go for Mutual funds, use local ones (not Luxembourg ones as those can contain more hidden costs). Oh - and if your investment horizon is shorter than 5 years, I would advise you to keep your money in a savings account or government or investment grade credit securities with a short duration (up to 3 years should be fine).

If, however, you can't stomach significant losses, or have a short investment horizon, just take your 0.05% and pray for better days. Anything else will mean risks you shouldn't be taking.

3

House prices aren't tied to the mortgage you take out. So if you buy an apartment for 300 000, you owe 300 000 + any interest. If the house price depreciates for any reason whatsoever, you still owe the original amount. The opposite of that is also true, if the house price increases in value, you still only owe 300 000. So there is no "overpaying" anything.

I think it would be best for you to buy a similar place you're currently living in using your savings as a down payment.

1) You will be paying less or similar monthly repayment 2) The apartment will be yours at the end of the term 3) When paid off, you have the option to move on and pay someone rent for another place and rent out the current place to someone else, or use the bond (if allowed to kept open when you paid everything off) to buy a new/bigger (or even similar) place, rent that out, and then use the rent you would have paid (which you don't anymore) plus the rent the other person pays you, and pay off the bond even faster, then rinse/repeat.

By the sounds of it, you NEED a financial adviser. So I would get a good one first and ask their opinion.

2

Ask all the universities in town how they invest their endowment.

Endowments aren't gambled. In fact they're some of the most watched money on earth, and professional management is done to a gold standard. And yet, they are invested for growth, and do indeed grow 4-7% a year against inflation. And they are invested very roughly the same - you'll see about the same ratios of large-cap, small-cap, foreign equities, REITs, bonds, etc. from endowment to endowment, and very similar practical expense ratios. It's the gold standard.

Understanding how endowments are invested will shatter your every belief about investing.

Simple fact is, nobody "knows nothing" about money. Everybody has very strong opinions about money. Most of those opinions are wrong. This is the #1 impediment to an accurate financial education, people are generally reluctant to learn things which contradict their preconceived notions. If you grasp that and are willing to reset your assumptions, you will learn just fine. It's not 1/4 as hard as brokers would like you to think it is.

1

You want to invest a sizable sum with zero knowledge? Then clearly the absolute first and only step you should be taking at this point, is gaining some knowledge! You probably should not just solicit random advice from strangers on the internet. You need to learn. Learn what money really is (you may be surprised) and how it actually is created and works. Learn about interest, especially compounding. Learn about real estate, business, entrepreneurship, read biographies of the wealthy or successful. Read about stocks, precious metals, and anything else you can. Devour your local library's finance/investing section.

Only then, will you potentially be somewhat prepared for stepping out on your own with your funds. And even after all that, you WILL make mistakes. You WILL lose money on some investment at some point (as it seems you already are with your savings). It is unavoidable and is the only way we humans truly learn.

Also, real estate is extremely risky, don't let anyone tell you otherwise. There are many things you can do to reduce and prepare for the risks (and I'm not just talking about the risk of overpaying for your property) but they are always present. If you aren't prepared properly, a month or two of vacancy plus a bad tenant who trashes the place on the way out, can cost you an entire year's income or more easily. This is not speculation, this is the voice of experience talking. So don't go thinking that real estate is automatically the best way to go because it's "safe". It can be an excellent investment, and it can also ruin you as I've seen it ruin others.

Good luck!

1

I'd advise to use a small proportion of the money to learn about investing. Buy some books, read them, read them again and find out what you're interested in.

In addition, there is plenty of information available on Youtube about investing. Get the mindset for investing and decide what's best for YOU! And do not listen to people who have less money than you do. They are a good source of information if you want to become poor.

If you're thinking about real estate investments, buy some books about the topic, do a market analysis, calculate revenues, predict the future (interest rates etc) ...

Buying an apartment for your own living is usually not an investment, it's a liability instead (I know, there are some exceptions...). Investments should bring you money, not cost you money.

1
  • Educate yourself about investing and financial IQ
  • Killer must-read book: Rich Dad Poor Dad by Robert Kyosaki.
  • Never invest more than you’re able or willing to lose
  • Understand that markets always go up and down, never just up
  • Currently we’re somewhere near the top. This chart gives you an indication as to why I believe so (and many with me)
  • So be very careful with the stock market (including etf’s and mutual funds) if you don’t know what you’re doing (and even then)
  • Gold and silver can be great investments during economic declines, but don’t just go out and buy physical gold and silver; there are more ways to profit from these metals. Read about it and time your investments
  • Investing in real-estate can work out great, if you know what you’re doing and if you buy at reasonable prices. As with most stocks, properties in the Netherlands are overvalued at the moment due to the low interest rates and good economic growth. I’d wait until a decline and buy at lower prices. Be sure to take a good course before taking your first steps

Investing is not that hard, but you have to know what you’re doing and have proper risk management in place. Most people fail at investing and lose money because they lack financial IQ and don’t know what they’re doing.

All the best and vriendelijke groet from Rotterdam

  • Thanks for you answer! Regarding real estate, waiting for decline might take many years, don't you think? Considering the amount of people living in this small country I don't expect to be able to buy much cheaper anything in any of the bigger cities. – user1880405 Mar 13 '18 at 11:03
  • Prices always go down when the economy goes down. From 2008 - 2013 prices of houses went down 25%. The question I always ask myself is: will I sleep well if I do this investment? With current prices in our country, the answer is a clear no. When they're down again, depending on the outlook, it might turn into a yes. And yes, that might take a couple of years. But I'll sleep a lot better in the meantime :) – RNobel Mar 13 '18 at 11:17
  • but how do you know the current high prices are not 'normal' based on current supply and demand? Isn't it possible that they will never drop? I am just little bit worried keeping money in bank account for years without doing anything. – user1880405 Mar 13 '18 at 15:47
  • Do some investigation in the housing prices, read charts, articles, blogs, books etcetera. No one here can or will give you a golden answer. You need to read up on these subjects, get a good understanding about them before putting your money in it. There's a lot of content to be found on the subject of financial iq and real estate, see my original answer. – RNobel Mar 13 '18 at 16:28
0

From your description, there are 2 things that are likely to cost you quite a bit of money, investing here could actually be beneficial and give a great return on investment.

Re-evaluate the car

If you have a company car, you are typically waving your transportation budget. In addition to this, if you use it for private purposes as well, you have to pay bijtelling. As a result a company car is likely to cost you over 1000 gross per month.

If you go for a private car, you are likely to get the transportation budget (and 19 ct/km nett instead of gross). For a new car this may not come out too great, but I bet that if you took your current car model, and bought a 4 year old model with high kilometers, you would be off much cheaper.

This of course assumes typical terms, it may well be unattractive for your specific company due to penalties to stop leasing, or due to only a fraction of the car cost being made available as transportation budget.

Re-evaluate the housing

You already indicated that buying an appartment that you currently live in would be about 300k. Currently the interest cost of a mortgage for the full amount would come out well below 500 per month. If you go for a 30 year payback plan, you should come out to monthly espenses just over a thousand or so (perhaps 1200 including VVE and other costs).

Combining this to the knowledge that an appartment of 300000 could easily rent for 1500 to 2000 in the current market, it should come out quite well to buy.

Note that your cash on hand makes the equation more favorable even, but that you should keep in mind that moving within 5 years becomes much less attractive. (Unless you would be able to rent out this appartment rather than selling it, but that is tricky with most mortgages).

  • 3
    I am not sure which problem you are trying to solve, but, AFAICS, not the OP's. – glglgl Mar 2 '18 at 16:19
  • I looked at the situation of the asker (Company car, rental house) and his objective (Has an amount of money, looking for the right investment), and indicated some things he could consider as they commonly and generally give a good potential for return on investment. – Dennis Jaheruddin Mar 2 '18 at 16:22
  • If you're buying, then you generally need to account for repair and upkeep as well as interest, utilities, etc., because those costs are no longer covered by the rent you were paying. I've often seen 4% of the value per year as a rule of thumb for a repair and upkeep fund. Some years you'll spend next to nothing, then the next year you need to completely replace the roof or something similarly expensive. For a €300K home, that 4% is another €1,000 per month on top of your thousand-ish for mortgage principal plus interest. So around €2,000 per month would be more like it than is €1,000-€1,200. – a CVn Mar 4 '18 at 0:29
  • 1
    @MichaelKjörling I was talking about an appartment, in The Netherlands those kind of costs (replacing roof, windows, stairs,pipes,...) are typically covered by an owners association, and I already included this (VVE) in the estimate. Also, typically the annual cost of a VVE for a 300k appartment would be about 1%, not 4%. -- Smaller repairs are of course excluded, but those would also typically be excluded if you rent a place. – Dennis Jaheruddin Mar 5 '18 at 14:58
0

Since houses are really overpriced in most regions in the Netherlands, I would advise not to invest in rental property. Especially now that interest rates are slowly picking up (this might decrease property value a bit)

If you want to get rid of the tax, you can for example put a part in a green-fund (for example: Regionaal duurzaam). You'll get tax-deduction and should be able to prevent paying taxes on your capital. See more info here and here

I you really want to invest, just use an Index Tracker to spread without much costs.

90k is not enough for putting money in an 'saving' company (SpaarBV/FlexBV). See here

0

If you don't like risk, how about a term deposit?

Many banks offer this kind of service with a relatively attractive return e.g. my bank offers 3.5% annually with a 2 year fixation. In case you will need the money, you can withdraw in as little as one day (with fees of course).

Depending on your country, your deposits might be guaranteed by your government, but you have to check that yourself.

  • 3
    Nowadays, term deposits in Europe yield very low interest rates. – Pere Mar 3 '18 at 11:39
  • This wouldn't even keep up with inflation. And the government-reported inflation numbers are very far off from reality. – Jonathan van Clute Mar 3 '18 at 17:43
  • @JonathanvanClute The ECB tries to achieve 2% annual inflation rate. How does 3.5% annually not keep up with inflation? – Jakub Lokša Mar 4 '18 at 8:43
  • 1
    Because inflation actually refers to an increase in the money supply. At least here in the USA, the amount of money that has been printed and funneled into the money supply is downright criminal over the last 10 years or so. It’s nowhere near 2 or 3% – Jonathan van Clute Mar 4 '18 at 16:00
  • @JakubLokša: Looking at the rates of Rabobank, a major Dutch bank, they pay 0.05% up to 2 years. To get the 1.2% you need just to break even with Dutch asset taxes (VRH) you need a 12 year deposito (!). And that's ignoring the 2% inflation - even a 17 year deposito pays 1.60%, half of the tax+inflation. The ECB printing machine is rapidly transferring wealth from North to Soutch Europe. – MSalters Mar 5 '18 at 0:55
0

Also a fellow Dutchman here. Best advice I can give you is this: Get educated about investing!

  1. Go to a financial advisor. Those people are licensed by law to give you a good advice, fit for your situation. Don't expect to get rich of this cookie cutter advice though.
  2. If you are more adventurous and have some time. Learn about investing online and via books.

Whatever you do, don't make hasty decisions with your hard earned money. A fool and his money are soon departed.

0

I think you have to ask yourself if you only want to invest the money or if you think you would like to start a new business.

Let me explain what I mean by that or where I think is the difference:

Most people who have a job and possibly a familiy and are everything but bored think of investment as signing some contracts for whatever with whoever (buy stock, buy any securities, buy Bitcoin, you name it) and then enjoy the return from that investment over time. But the involvement they have with those investments is measured in minutes per month or hours per year, typically.

Starting a new business means you will use both your money, maybe even some borrowed money and lots and lots or your time and energy. Either hoping it will pay off financially and / or be otherwise rewarding. People have a very different idea of what fun means to them.

If you enter the rental market by buying and letting an appartment, you will start a new business. You will learn many, many things about the real estate industry which will possibly pay off if you intend to manage 5, 10, 25 appartments any time in the future. Just one appartment (or two) cannot make up for the effort. And if you leave all the work to others (aka real estate funds) they will take (most of) the money and not you.

And by the way:

I don't know the real estate market in the Netherlands very well and you are not saying from what part of the country you are coming, but take a look next door. The real estate market in adjacent Germany, especially the Ruhr valley area isn't half as overheatet as in Düsseldorf, Cologne, Berlin or possibly also Amsterdam and the like. But then of course it would mean you'll also have an apprenticeship in a foreign law system. Actually, there are people who think this is fun.

  • Thanks for the answer. But why can't a single apartment make up for the effort? Let's imagine i invest all my 90K into a small studio in university city and rent it out for 500 eur per month. The demand here is massive and there is a large shortage of rooms to live in. Why would that not be viable way to invest and make money? Yes, I know I might get a bad tenant, yes I know I need to pay taxes, and fix the apartment and all that stuff. It does depend on luck as well. I myself rented similar studio for 5 years and never even saw my landlort, and I don't think he had to pay a lot for repairs. – user1880405 Mar 6 '18 at 13:28
  • Of course it depends on your frustration tolerance, but please start with the idea that the 500 EUR / month are not your income from the appartment. 450 of those 500 will probably just be "getting your money back" which you paid upfront and 50 might count as profit. That is 50 EUR per month or 600 EUR per year which is your actual income from that activity. How much time can you spend making 600 EUR / year? – TorstenS Mar 7 '18 at 13:45
  • what do you mean 450 will be "getting your money back"? Do you mean if I take a mortgage in addition to my savings? Not really, because by paying mortgage you buying out your own house. – user1880405 Mar 8 '18 at 11:51
-1

Like mentioned already, ETFs are a possibility, but in the end your investments might be at risk. If you are afraid of a economy crash, gold or silver are a pretty safe investment. If you are afraid of a real big crash, you should buy some physical gold. If you want to invest in real estate you could also invest into real estate fonds, but like you mentioned, prices for real estates could crash aswell. Another option are federal saving bonds, of a country you trust.

Either way, I am afraid you have to do some research yourself, especially if you want to invest into fonds (real estate or etf). The problem with investing is, that your investment might lose value, or if you buy federal saving bonds, inflation might kill your savings. There is no 100% safety.

  • 3
    gold or silver are a pretty safe investment not if you bought gold in March 2013 ($51) and had to sell in December 2015 ($34)! Gold etc. are as risky, if not more so, than any other item... goldprice.org/de/gold-price-chart.html – AnoE Mar 2 '18 at 20:59
  • I thought we are talking about long term investments. – QEDemonstrandum Mar 5 '18 at 9:31
-2

Avoid interest altogether. Usury is only socially acceptable in the last couple of years. In the religious texts, it is spoken against, for example Psalms:15:5, Exodus:22:25, Koran:2:275.

Try buying a crate of solar panels in Shenzen and shipping them to Africa.

Buy Bitcoin. Try "BitOasis" to get started.

Invest in a good business idea.

Start your own business.

Give some to charity.

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