How I invest my money

October 1, 2023

Legal disclaimer: not investment advice. You act at your own risk.

What’s better than having some money to spend today? Having more money to spend in the future! If you roughly think so too, you should consider investing - in some cases - in stocks. Here’s how I do it.

Emergency fund

I made sure to have at least a few months of runway in my bank account at any time. For me, I chose to keep an emergency fund of around 10,000€ not to be invested. As of 09/2023, interest rates have gotten up a lot again, so you can get around 4% returns p.a. even on your overnight deposit account (Tagesgeldkonto). This is a great place to put your emergency fund: 4% are decent returns considering that your money here is very safe. In Germany, all personal bank accounts are secured for up to 100,000 € by the state, so even in case your bank fails, you’ll probably still get your money back.

Stocks and other investing options

After having my emergency fund together, I started investing my money in riskier investments as well. A general rule of thumb is: the higher the potential returns of an asset are, the riskier it is. I invest around 85% of my money in ETFs and around 15% in a peer-to-peer credit platform. Note that I consider my investments in peer-to-peer credit platforms way more experimental than ETFs and I think for most people, investing only in ETFs is the right call.

Investing in ETFs

ETFs are collections of stocks, where you buy shares in a lot (typically hundreds or thousands) of companies at once. While there are a huge number of different ETFs and ETF types, the ones we’re looking at here are ETFs that are very widely distributed across different industries, markets and geographic regions; and replicate shares in the companies covered according to their relative market valuation. Historically speaking, ETFs have demonstrated to be a great way to invest money in stocks, as compared to investing in managed stock funds or stocks individually. This is because it is pretty hard to pick the right stocks which will turn out to be performing well - both for fund managers and for you. So please don’t listen to anyone trying to sell you on their managed stock fund and especially don’t try making money by picking stocks yourself. You’ll most probably make a worse deal than investing in “the right” ETFs.

Considerations to make before

Investing in ETFs give you the opportunity to profit from the general growth of the economy. But as you probably know: the economy isn’t always growing year-to-year. Stock crashes, pandemics, wars, etc. happen in an unpredictable manner, making short-term economic growth hard to foresee. If you want to be reasonably sure to profit from your ETF investments, you should be willing to leave your money invested for at least 10 years. Over such a long period of time, I assume for myself to get returns of around 7% per year on average. If you think you could need your money invested on a shorter than 10 year time frame, I wouldn’t recommend you to invest in ETFs and just invest your savings in overnight deposit accounts or similar.

You also should be aware that investing money in ETFs still is a somewhat risky thing to do. You have significantly higher risks to loose (parts of) your money compared to leaving it in your bank account, for example if the economy develops very badly over the next couple of years. While I see the risk of economic downturn, I calculate for myself that it’s a risk worth taking for me.

My objectives for ETFs

When choosing the right ETFs for me, I had three objectives:

1. The ETFs should be distributed widely across many different companies

2. The ETFs should have low overhead fees

3. The ETFs should exclude morally questionable companies

A common way to create an ETF is to pick the most valuable companies worldwide according to their market valuation - this is what the MSCI world index does. It includes around 1600 companies, with a majority of them from western countries, as these countries have tend to have the best performing companies. However, the MSCI world also includes a couple of companies working in questionably business areas, like weapon or tobacco production. Luckily, there are hundreds if not thousands of ETF products that address this issue by filtering out the most questionable ones, with different filters. These filters are often called something around “ESG”. However, many such filtered ETFs kick out a lot of companies from the MSCI world ETF, like for example Microsoft. Additionally to that, the number of companies left in those MSCI world ESG-filtered ETFs often gets reduced by a lot, often around 400 companies from the originally 1600 left. I considered for myself that I preferred to invest more broadly, as this makes my investment more secure. And also I don’t have a problem investing in most of the companies filtered out for “ESG” reasons. After all, if I want to do good with my money, there are ways I consider to be much better.

However, since I don’t want to invest in weapon or tobacco producing companies, I chose ETFs which are lightly filtered just for those extreme companies. I also chose ETF products, which have relatively low overhead costs, so that I don’t loose much money there.

Accumulating vs. Distributing ETFs

When you choose which ETF to invest in, you’re often confronted with the choice between accumulating and distributing ETFs. It’s pretty simple in principle: distributing ETFs will pay out the annual dividends companies on your ETF emit, while accumulating ETFs automatically reinvest those dividends for you. While some people try to find a good combination of these two types of ETFs to gain tax benefits or have the joyful experience of getting money payed out to their bank account each year, I think it’s the best choice for most people to just stick with the accumulating ETFs.

Investing both in industry countries and emerging markets

One “downside” by solely investing in MSCI world ETFs and related products is that you’ll predominantly invest in industry countries, and mostly western countries. If you believe however, that emerging markets (e.g. India) have a decent chance in growing a lot in the next couple of years, you could consider investing parts of your ETF investments in ETFs covering emerging markets as well. I chose to invest around 80% in industrialized world ETFs and 20% in emerging markets ETFs.

ETFs I chose

Name	ISIN	Market
iShares MSCI World ESG USD	Distributing: IE00BFNM3K80 Accumulating: IE00BFNM3J75	Contains around 1400 companies from the industrialized world, with around 70% invested in companies from the USA.
iShares MSCI EM IMI ESG USD	Distributing: IE00BFNM3N12 Accumulating: IE00BFNM3P36	Contains around 2300 companies from emerging markets, with around 27% invested in companies in China, 17% in Taiwan, 16% in India and 13% in Korea.

These ETFs are created by the company BlackRock, who describe the exclusion of controversial companies as followed:

Excludes exposure to: controversial weapons and nuclear weapons; production of tobacco or civilian firearms; revenues from power generation from thermal coal; distribution, retailing and supply of tobacco products; distribution of civilian firearms; fossil fuel extraction; production or distribution of palm oil or extraction of Arctic oil and gas; companies that violate the United Nations Global Compact; and companies involved in very serious controversies.

How to invest

I invest in my ETFs using Trade Republic, a german online broker with very low fees and easy to use. You can use my referral link to create an account at Trade Republic.

Once you have an account there, you can wire money to them from your bank account to invest. I would recommend to invest a share of your income on a monthly basis. You shouldn’t try to “time the market” by trying to find the best time window when to invest - just invest continuously and review your investments every few months to see if it still reflects your beliefs about the worlds.

In order to find the ETFs I recommended above, just search for the ISIN on Trade Republic.

Peer-to-peer credit platform I chose to invest in

I invest a bit of my money in the peer-to-peer credit platform Bondora. They give out microcredits to people mostly in poorer european countries (for example when their car breaks and they don’t get a loan from their bank for paying for the repair). I consider this investment a bit more risky, as ultimately I have to trust that this whole platform needs to keep working. But what I do like is that I get more than 6% p.a. on my investments and that I can withdraw my investments at any point in time (assuming Bondora is still around and hasn’t messed up a major thing).

If you think that this is something for you, too, use my referral signup link.

Final thoughts

I spent quite some time when I initially engaged with different investment options, and I certainly did not cover all aspects here. But you know now, how I invest my money. Make your own choice on what you want to believe what I write here and what you would like to learn more about. Investing is certainly an interesting topic to learn about and there are loads of excellent videos and blogs about on the internet.