How to buy stocks in Germany: A beginner’s guide

According to Deutsches Aktieninstitut, more and more people in Germany are investing in stocks. It seems to be becoming less difficult for private investors to start out on their investing journey, meaning investing in today’s stocks is easier than ever. This article will show you how you can invest in stocks in Germany as a beginner, and what you need to look out for when doing so.

First things first: You need to remember that the stock market is subject to certain levels of volatility and fluctuations will almost always occur. This means that your portfolio may, at times, show a negative return and, in more serious cases, the value of your investment(s) may decrease. Although there are strategies that can help mitigate this risk, some risk will always exist when investing.

How to buy stocks – what you need to know before buying 

When buying stocks, it is not only the acquisition that is important; a positive mindset is also hugely beneficial. The way you approach investing will have an enormous impact on whether you reach your goals or not.

Here are a few factors worth bearing in mind when you start making your investment(s).

Invest in stocks across a long time horizon 

The stock market will endure good and bad years, but historically speaking, a well-diversified portfolio will yield an annual average return of around 6% when invested over a long period. A sensible investment period should last at least 5-10 years in order to avoid having to sell your stocks when the market is at its lowest. 

Diversify to spread risk 

If you put all your eggs in one basket when investing, the outcome may end up being less than desirable. Over the years, a diversified portfolio that allows people to invest in different companies across different countries and industries has proven to be useful in mitigating the risk of fluctuations or total losses.

Be careful with hidden fees 

When buying stocks, it is important to be mindful that you may incur a number of fees along the way such as deposit fees, surcharges during stock value increases, selling costs, and transaction fees. It is not always apparent at first glance that they are even there, nor is it apparent when they are actually applied, so be careful and read the small print first before you consider buying.

“Buy and hold” 

There is an old proverb in German, “Hin und her macht das Taschen leer”, which literally translates in English to, “Back and forth makes pockets empty”. In other words, if you keep on investing back and forth, you’re going to end up accumulating a lot of unnecessary fees. As the English translation suggests, the constant buying and selling of stocks will ultimately minimise the value of your portfolio over time. Online stock trading may seem quick and easy, but it is known to be quite ineffective by experienced stock marketers.

“Buy and hold”, however, means that you buy the stocks and then “hold” them over a long-term period – the benefits of which we have already mentioned in the first point.

One final tip: Each investment you make can incur risk, and when you’re investing money on the stock market, you may witness the value of your portfolio reduce over time or even hit 0. 

The risk of a total loss can indeed be mitigated by means of a diversified portfolio, but this can never be 100% guaranteed and you may fall victim to certain fluctuations. For this reason, a longer-term investment strategy will help you to stop stressing out over the volatility of the stock market.

Where can you buy stocks? 

There are several ways to buy stocks. The first step would be to open a securities account at your bank or with an online broker. It is here that you will be able to securely store your securities and other investment items. Securities are regarded as special assets, meaning that they are also unable to be seized in case your bank or broker goes bankrupt.

The account will, under normal circumstances, open automatically once you start investing.

We would now like to present to you three options when it comes to buying your stocks. The first option is through the bank; the most popular provider of financial services. Then, we will explain how you can manage your investments online using online brokers and robo-advisors.

Finally, we will offer you the opportunity to invest effectively with Inyova and profit from low fees. In doing so, you will not only be doing your portfolio the world of good but the environment too.

Investing in stocks via the bank 

Most people have a bank account, be it with an online international bank or a local bank they’ve used for years. Alongside bank accounts, banks generally offer investment services too.

For example, with Sparkasse you can open an account that allows you to buy stocks and other securities via the bank. In the majority of cases, you just need to go to your local branch or check out the bank’s website to find out more about your respective options. 

Advantages and disadvantages of buying stock via the bank 

Due to the familiarity many people experience when working with a bank as a financial institution, it would seem logical to use them to bring your investment goals to fruition. You will also likely have consultants available to talk to about all and any questions you may have about the subject of investing.

However, banks also charge high (and sometimes hidden) fees, which may end up negatively affecting any potential return. Often, banks work with investment subsidiaries who offer outdated funds products to investors, promising consultants a high commission all while not really providing you with the added value you need.

An example of such an offering is the “Depot Direkt”, provided by the Berliner Sparkasse: 

• Base charge per security = 24 EUR p.a.
• Safekeeping fee = 0.18% of the total amount
• Purchasing commission per acquisition = 0.25% (max. 99 EUR)
• Plus base charge per transaction = 9.90 EUR (for a diversified portfolio with 30 stocks, a total of 300 EUR in transaction fees would accrue!)

Here is an overview of the advantages and disadvantages when it comes to buying stocks via a bank:

Advantages

• Access to branch employees
• Familiarity with the bank as a financial institution

Disadvantages

• High and potentially hidden fees
• Circumstantially targeted selling of ineffective financial services
• Lack of transparency
• Lower returns than expected

Buying stocks via an online broker 

Online brokers are becoming more and more popular, and at the beginning of 2020s in particular, we can see quite a few intense advertising campaigns for different trading apps. 

A broker is a financial services provider that serves as an intermediary between the stock exchange and the investor, ultimately permitting the latter party to trade in securities. An online broker allows for this trading to take place on the internet.

Online banks such as Consorbank and Comdirect, as well as apps like Trade Republic and Scalable Digital, are all examples of online brokers. Inyova also falls into this category, albeit in a different way. We’ll delve into this in more detail shortly, mainly because there are significant differences when it comes to Inyova’s offering and the offering of other online services. 

A term you may have heard in conjunction with online brokering is “robo-advisor”. A robo-advisor is a programme that puts together and automatically manages a customised investment strategy that is based on your information and investment algorithms. Robo-advisors will show you which stocks to buy based on the investment criteria you select in advance, and save you time in buying the stocks, thereby enabling your investment to work autonomously and without much external input.

Advantages and disadvantages of online-brokers and robo-advisors 

If you use an online broker, you can make the selection of your stocks yourself. It is important, however, to thoroughly educate yourself well in advance on the stock market, developing certain expertise before you embark on your investment journey and allowing you to select securities that are best suited to your individual investment strategy. 

If you value sustainability, you need to be aware that a robo-advisor will seldom take this into account and that the criteria for selecting sustainable companies will likely be inadequate.

Remember to watch out for fees here too. Online brokers do seem to be cheap(er) at first glance, but they do often incur hidden fees, which you may find firmly embedded in the small print. 

Here is an overview of the advantages and disadvantages when it comes to buying stocks via an online broker:

Advantages

• You have the final say
• Relatively cheap providers
• Usually high levels of transparency due to competition

Disadvantages

• You need a certain level of expertise when it comes to selecting stocks
• Robo-advisors often have inadequate sustainability criteria
• Potential hidden fees

Investing effectively for beginners – Inyova Impact Investing 

Impact investing means choosing areas of investment that are important to you, such as renewable energies, clean water, or a vegan diet. Once you have selected your areas of interest, Inyova will use these criteria to assemble an investment strategy for you.

With impact investing, your investment not only has the potential to yield good returns, but it may even enable you to make a positive impact to the causes you care about, or at least contribute to doing so.

Advantages and disadvantages of impact investing 

The most significant characteristic of impact investing is that you are investing not only in companies’ stocks but also in what is known as “green bonds”. Green bonds fund new and sustainable projects such as the installation of charging stations for electric vehicles. Moreover, through the shares you own, you can actually make an impact by making your voice heard at shareholder meetings, as evidenced by the example of our community’s impact at BMW.

Here at Inyova, we adopt a diversified “buy and hold” approach, meaning that your money is invested in 30 to 40 stocks belonging to companies across different countries and industries. Portfolios such as these have mitigated investment value fluctuations in the past, all the while yielding an annual return of around 6%.

Inyova is not one of the so-called “get rich quick” models, which seek to make you thousands of Euros in just 4 months (this is highly questionable at the best of times). Instead, we invest your money over a longer period without constantly buying and selling securities. The fee incurred here amounts to between 0.6 and 1.2% of the invested amount, depending, of course, on the initial investment amount.

Here is an overview of the advantages and disadvantages of impact investing with Inyova:

Advantages

• Customised investment strategy
• Transparent costs
• Significant focus on sustainability and societal impact
• You own your stocks
• No prior financial knowledge required

Disadvantages

• No “get rich quick” schemes
• A little more expensive than funds or ETFs 

“How do I buy stocks” 101 

You have different options when it comes to buying stocks: banks, online brokers, robo-advisors, and Inyova. All have different advantages and disadvantages. Banks will generally charge you a fee, however, they offer their support throughout your investment period, while online brokers generally charge a lesser fee because you are ultimately responsible for your investment.

If one of the main goals of your investment plan is to not only make money, but also do something impactful in the world, Inyova is the perfect choice for you.

Creating an investment strategy using our online tool is fun and within just a few minutes you will have your very own impact investment strategy that focuses on the causes and missions you care about. With Inyova, it’s easy to invest in the capital market without issues and prior knowledge of the industry.