FAQ

Your questions – our answers

1. What is an ETF?

“ETF” stands for “Exchange Traded Fund,” which is a fund that holds a variety of assets such as stocks of companies, bonds, or commodities. For example, the iShares All Country World (ACWI) holds stocks of about 3,000 companies worldwide and thus represents the global economy well in terms of breadth. It is almost impossible to efficiently diversify a portfolio globally with individual stocks. In contrast to an investment in individual stocks, a globally invested ETF can be considered safe. While the value of the fund may fluctuate and even fall in the short term, the value should develop positively in the long term if we assume a positive development of the global economy as a whole. The development of individual companies or regions plays only a secondary role.

For passive ETFs, there is no fund manager who selects the stocks, this is done automatically and therefore extremely inexpensively. For the iShares All Country World, for example, only around 0.20% of costs per year are incurred, which makes it ideal for long-term investment.

2. What is a Brokerage account?

A portfolio or stock portfolio is an account where you hold your assets (such as ETFs, stocks, bonds, or commodities). You can open a portfolio with an online broker (see Online Broker Recommendation) or with a bank (usually associated with higher costs). After opening the portfolio, you only need to make a deposit by transferring from your checking account and you can start investing.

By the way, you don’t have to worry about the financial situation of the respective broker. The securities in a portfolio must be listed as special assets and are also safe in the event of the operator’s insolvency.

3. What is a stock?

A stock is a certificate of ownership of a company. When you buy a stock, you are participating in a company of your choice. This gives you asset and participatory rights, but no obligations or legal risks.

Companies sell stocks to raise fresh capital for their planned projects. For example, to build a new production facility. If you buy these, you own a percentage of the company’s capital, depending on the amount of the investment.

The total value of all a company’s shares represents the value of the company. Therefore, the value of your stocks depends on the success of the company.

A stock therefore gives you much more than just a claim to a share of profits. You own a share of properties, machinery, and employees who are working to achieve new goals every day.

For this reason, stocks are historically the most profitable investment class and should also be the foundation of your investment portfolio in the future.

4. Isn’t investing very risky?

An investment in an individual stock is always at risk of total loss. Any company can easily fail in its planned projects and lose 100% of its value slowly over time or even very quickly over a short period of time.

However, if we consider the entire global economy, it can be considered safe. It is possible that a nuclear world war could take us back to the stone age, but in this case the loss of value of an investment should not be a concern. You can learn how to systematically invest in the global economy in Step 2.

Price fluctuations or negative price trends will inevitably be part of the daily routine, but the further the time horizon is considered, the safer a positive market return will be. If we consider past decades, it is normal for your investment in the global economy to double after around ten years.

You will also learn in Step 2 why positive returns are inevitably created in the capital market. You should not view price fluctuations as a risk, but rather welcome them with open arms. In Step 3, you will learn how to even increase your long-term returns in volatile times.

5. What is a portfolio?

A portfolio, or investment portfolio, is made up of the sum of various assets. For example:

50% stocks
20% real estate
10% bonds
10% cash

You can manage one or more portfolios. For example, a conservative portfolio for your short-term money investment might look like this:

70% bonds
15% stocks
15% cash

And in addition, an aggressive portfolio for long-term wealth-building:

90% stocks
10% cash

6. What is an asset?

The term asset generally refers to a financial asset. This can include stocks, bonds, commodities, real estate, or cash. You can invest your money in various assets. When we invest in the global economy and companies from around the world, we use stocks. These are bundled into ETFs to achieve a broad diversification and an efficient, cost-effective investment.

7. How is a crisis defined?

Unfortunately, there are always crises somewhere in the world, such as wars or environmental disasters, while in other parts of our planet there is normality or even a boom, with a thriving economy and positive social development. Overall, we expect a positive development of the global economy and therefore invest broadly in the global economy.

However, there are always global crises, such as the financial crisis of 2008-2009 or the Corona pandemic since 2020. As an investor, we do not try to predict crises or predict their triggers. Nevertheless, it is useful to define a “crisis” in order to make good investment decisions. We take the global stock markets for orientation, as they reflect the behaviour and decisions of lots of people all over the world. We can use the MSCI All-Country World Index as a benchmark. However, you could also look at another global index.

Two market phases are generally distinguished in the financial markets. Bull markets are characterized by mostly rising prices, while in a bear market, prices show falling trends. Bull markets often last for years or even decades and are constantly accompanied by price corrections, often between 5-15% from the all-time high. This is normal market behavior with price fluctuations that do not affect the long-term oriented investor. Bear markets are usually shorter, a few months to a few years. As a rule of thumb, you can speak of a bear market when prices are 20% below the all-time high.

Important: As a long-term oriented investor, we can use bear markets to our benefit. Exactly when the media is fueling fear, there are often lower prices on the capital markets that can be used for follow-up purchases. In a bear market, you could therefore use your cash reserves to top-up an ETF savings plan through one-time investments in the respective ETF. It is not possible to predict how far prices will fall in a bear market, emotions and fears of market participants play a major role here. For example, global stock market prices fell very quickly by 30-40% in February-March 2020, including the MSCI All Country World Index. Afterwards, a recovery almost as fast set in. In the financial crisis of 2008-2009, many stock market indices even fell more than 60%. It is therefore advisable not to fully invest your cash reserve immediately in the event of a 20% price crash, but to divide it into 2-3 tranches. Further information on this topic can be found in Step 3.

8. What is trend?

A trend is said to exist when the price behavior of an asset, such as a stock or ETF, has a clear direction. In an uptrend, we tend to see rising prices over time, which are reflected in higher highs and higher lows on the price chart. In a downtrend, it is exactly the opposite. Most stock markets are currently in a long-term uptrend.

The Dow Jones Industrial Average stock index is in its long-term uptrend.

When investing in the global economy according to Step 2, we assume that the global economy will develop positively in the long term and is therefore in an uptrend. Historically, this has definitely been the case for long periods of more than 10 years. However, there are always crises and short-term downtrends in between, such as the Dotcom bubble 2000-2002, the Global Financial Crisis 2008-2009 or the Corona crash 2020, which can be used for long-term follow-up purchases (see the concept of Global Portfolio One).

In tactical asset allocation, short-term and medium-term trends that develop over weeks or months are also used. The portfolio is reviewed monthly and tends to be invested in assets that are in an uptrend.