How to invest 250,000

InvestmentThis is how you invest 250,000 euros sensibly

What you shouldn't do with a quarter of a million euros is easy to say: You shouldn't leave it in your current or overnight money account. More and more banks are charging a so-called custody fee for higher sums parked in sight deposits, shows a study by the consumer portal In doing so, they pass on the penalty interest charged by the European Central Bank (ECB) to their customers. The custody fee is currently often the 0.5 percent that the ECB also requires. With some financial institutions this fee is due from 100,000 euros, with others only from 500,000 euros - on average from around a quarter of a million.

The motto is therefore: invest. Now, 250,000 euros are not enough to live on the capital income alone. With a return of four percent per year, assuming two percent inflation, you can generate a cash injection of 1000 euros per month - without affecting the basic stock.

A four percent return is easy with equity investments. However, this only applies if you invest long-term. For example, anyone who bought Dax shares at the end of 1992 and sold them again at the end of 2000 has in the meantime been able to look forward to an average annual return of 19.5 percent. If sold in 2002, after the dot-com bubble burst and the attacks of September 11th, the average return on the system would have fallen to 6.5 percent annually, according to calculations by the German stock exchange. Over several decades and crises, however, Dax investors could recently expect an average of 8.4 percent plus per year.

Don't listen to supposedly bomb-proof investment tips

Short-term slumps, such as the last one the Corona crisis brought with it, can mess up financial planning for individual years for investors. In order to achieve a stable four percent annual return, investors should therefore not rush to invest their capital in supposedly high-yield investments, but rather proceed according to plan, says Christian Lange, managing director of the independent financial consultancy VZ Vermögenszentrum.

Specifically, investors should heed five points, says Lange. The first: Don't listen to supposedly bomb-proof investment tips. They usually end in a debacle. Second: Don't choose an off-the-shelf investment strategy, but invest in a way that suits your personal preferences. Third, ignore feelings like fear and greed. "Emotions cause great damage when investing," says Lange. For example, many investors who sold at a loss during the recent turbulence are unlikely to find the right time to enter if the markets recover from the corona shock across the board. The fourth advice of the investment expert: avoid unnecessary costs. Fifthly, those who do not trust themselves to implement these points should hire a professional.

"This is an amount that should be invested professionally"

Christian Lange

With a quarter of a million euros in investment capital, you are not rich in the eyes of professional money managers, but you are wealthy. Such a sum opens the door to private banks and asset managers for investors - at least for those who also accept smaller asset management mandates. The professionals get paid for their work, but can actually deliver added value to investors with a larger sum such as 250,000 euros, Lange is convinced. “That's an amount that should be invested professionally,” he says.

In any case, it's an amount that can be intimidating. Some people may not want to invest such a sum in the stock market in the first place, but instead purchase a property. With a quarter of a million euros you can at least afford a condominium in major German cities. For a house, depending on the size and location, you also need a small to medium-sized loan.

However, investors shouldn't put all of their money into a property, warns fee advisor Lange. First, in this case, the capital is tied up for the long term. Second, the value of a property can definitely fall, even if fans like to speak of “concrete gold”. Thirdly, owning a home is only conditionally suitable for retirement provision. Many German pensioners have considerable real estate assets and only modest incomes. They don't pay rent, but live from hand to mouth and often don't even have enough money to pay for repairs to the house.

Ultimately, it depends on the age of the investor how to best invest a quarter of a million euros. Anyone who wants to invest such an amount in their mid-30s would rather buy a house than someone in their mid-fifties who, if in doubt, already lives in their own home. If you want to invest the money in the capital market, you have to pay more attention to an adequate return at a young age if you want to generate additional income without affecting the substance. For some older quarter-millionaires, on the other hand, it might be enough to invest the money in such a way that only inflation is offset - in order to use it up little by little. Anyone who pays out a thousand euros every month can get around a good 20 years with 250,000 euros.


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