There is a lot of confusion and there are a lot of questions when it comes to financial dealings for expatriates. The problem lies in the amount of risk involved when looking into investing in Germany. It is quite possible and plausible to invest while living in Germany, the key is to be extremely cautious and to stay well-informed.
The reason investing is such a risk in Germany is because of the lack of laws protecting the rights of investors and consumers. It is easy to be lied to or swindled, especially when the investor is ignorant or uninformed, and there is little an investor can do about it. So, proceed with caution and be armed with information to leave little room to be cheated.
Investment Options and Products
The first thing to consider when choosing an investment plan is making sure that the platform chosen is willing to make the necessary reports and file the necessary paperwork with the IRS. Not all platforms are willing to do this, but enough are willing, so there are still a variety of options.
It is important to figure out the amount of risk you want to take with your money when choosing an investment plan. Logically, it pays to be financially conservative. While high risk plans may promise high rewards, they also have a high possibility of losing money—be wary of promises of reward with high risk plans; if it sounds too good to be true, it is.
The least risky options include a cash savings plan or bank deposit with a bank that is covered by the government guarantee scheme. Another low risk option is a guaranteed pension plan or a deposit with an insurance company—after that, you have investment funds and mutual funds, which range on a scale from Risk Category 1, which is low risk, to Risk Category 5, which is very high risk. The remaining higher risk options include closed-ended funds, direct investments in government subsidized long-term projects, investments in residential property, zertifikate, which are investments or certificates which use derivatives to reflect movements in markets or indices; and hedge funds or private equity investments.
Tips for Making Investments in Germany
One of the most common ways people invest in Germany is through their banks; however, that is not always the best or safest route. Typically, a bank employee will earn promotions and raises based on the volume of their sales, and with the minimal consumer protection laws, this leaves the potential investor subject too much risk as the bank employee will be focused on the sale and not on educating, advising, or informing the customer.
Independent advisers can be helpful. Make sure to request all of the information they are offering in writing, so that options can be researched and mulled over before making decision. If the adviser is not willing to give the information in writing, then it is time to look into a different adviser.
One of the best options when investing is to go with a platform. Platforms may cost a little bit annually, but they tend to be simpler and more efficient.
Keep in mind that Riester-Rente or Rürup-Rente plans are private pension plans, which means that the funds will not be available until the customer reaches age 60, and receiving the money becomes more complicated should the customer decide to leave Germany.
Lastly, tax laws change over time, so it is ideal to consult a tax specialist before making any decisions. Tax specialists will not give any advice about the investment, they will simply offer the tax information related to the investment.
While financial advice and investing is by no means simple, it is a smart way to handle money. In Germany, while it may be advisable to proceed with extreme caution, it is completely plausible to invest while living in the country.