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Wealth accumulation: 15 tips on how to build wealth in the long term

How do I build a fortune?

In order to answer the question of how best to build up a fortune, it should first be clarified what is meant by this. Wealth accumulation means that you invest money and let the investment you choose work for you. This creates a passive income for yourself. It's not about putting aside part of your income every month, i.e. building up a fortune by saving. It is about the thoughtful use of free funds.

Already knew? A private household in Germany has an average net worth of € 232,800. This was the result of a study by the Bundesbank from 2019. This includes all tangible and financial assets of a household as well as savings minus liabilities.

So that you can build up a fortune, we have put together 15 tips for you. These tips shed light on the prerequisites and give you pointers for your individual wealth accumulation. For a better overview, they are divided into three categories.

Overview of tips for building wealth

  • Tips for preparation
  • Tips for building wealth
  • Tips on specific forms of investment

5 tips to prepare for wealth accumulation

Everyone brings their own personal characteristics and framework conditions that influence the path to building up wealth. These are the family situation, the professional environment, the income, the age, character traits and the goals that you would like to achieve. The first five tips are about these basics.

1. Record your current assets and arrange basic coverage

Get an overview of your current assets. To do this, list all the assets, such as a property, a car, furniture, household effects, clothing and other items that you own. In addition, you include financial values ​​such as savings, shares or a building society loan agreement. You deduct your liabilities from this amount. This can be a home loan or a car loan.

Take this opportunity and check whether you have a suitable pension plan and all the necessary insurance for basic coverage. Depending on your life situation, this can be liability, occupational disability, household contents or residential buildings insurance. The motto here is: First create the basis, then invest money.

2. Put an iron reserve in place before you start building your wealth

Sudden financial bottlenecks can always crop up. For example, if the car breaks down or a high tax back payment is due. For these cases, it is best to create a reserve that you can access at any time. We recommend three to six monthly salaries, which you can, for example, park in a daily money account. The current interest rate of less than 1% is not very profitable, but still better than with a savings book or on the checking account.

The following pyramid for wealth accumulation represents the recommended distribution of your wealth.

  • The lowest level corresponds to the foundation and contains the basic protection (see tip 1).
  • Above is the nest egg.
  • Only then, at level 3, is it about building up assets. However, with secure investments such as fixed deposit accounts.
  • Only a small proportion of your investments should go into risky and speculative investments (level 4).
3. Only spend what you have

A loan is quickly taken out for the purchase of a refrigerator or a computer. But that doesn't get you any closer to your goal of wealth accumulation. On the contrary, the repayment due and the interest reduce your available capital. Therefore, think carefully about whether it is necessary to take out a consumer loan.

4. Develop a strategy for building wealth

The selection of possible forms of investment to build up wealth is very large and there is no such thing as a perfect one. There are differences in the investment amount, the investment period, the risk, the possible profit and the effort involved in managing the investment.

Therefore answer the following questions as honestly as possible:

  • How much money do I have available for saving and building wealth?
  • How long can I do without fixed money?
  • What specific goals do I pursue with an investment?
  • What risk do I want to take?

If you have answered these questions realistically, you can estimate which form of investment is suitable for you. Two examples should make this clear:

  • Example A: You are in no hurry to build wealth, you are satisfied with relatively low profits and you want to keep the risk low. Then a fixed deposit account can be the right solution for you.
  • Example B: You want to make a high profit in the short term and you are willing to take high risk. Then you can invest in bitcoins or startups in the financial sector, for example.

Based on your personal needs, develop a long-term strategy to use. Make a plan of what you want to achieve by when. You can find the advantages and disadvantages of the most common types of investment in our investment tips.

5. If you start at a young age, you will have more of your investments

If you start building wealth at a young age, you will have more time to devote to your project and, with the right choice of investments, you can achieve greater profits over a long period of time.

Because building wealth is not a sprint, but rather a marathon. That means long-term thinking is the order of the day. For example, there may be short-term losses on the stock markets, but these will even out over the years. And an investment with an average interest rate can bring in a higher profit over a long period of 10 or 15 years than an investment with high interest rates that involves a high level of risk. Patience is important in building wealth.

Info! Since 2009 you have been paying a withholding tax of 25% on your investment income. This applies to profits from bank deposits, stocks, bonds and other investment products. With an exemption order, you can exempt income of up to € 801 from tax. For married couples, the tax exemption doubles to € 1,602.

5 tips for building wealth

Whether you want to build a fortune with stocks, real estate, or investing in gold bars, there are a few tips that apply to all forms of investment.

6. Debt reduction comes before wealth accumulation

Do you have current loans, other liabilities or are you in the red with your overdraft facility? Then focus on that first. In most cases, the interest on your debt is greater than the potential return on an investment. Try to pay off this debt as soon as possible. Only then does it pay off to start building up your wealth.

7. Review asset accumulation strategies regularly

If you have decided on a certain approach to asset accumulation and have already started implementing it, it is worthwhile to review these plans once a year or every 2 years. Have your private requirements changed? Are there any new goals? Are there any new financial products on the market? Is the profit as high as expected? What is the current interest rate trend? You may need to adjust your strategies.

8. Tax benefits should not be critical

There are forms of investment that are associated with alleged tax advantages. In the past, this included various funds and products for old-age provision. But some of them failed to keep their promises and resulted in losses. In addition, tax laws can change and potential benefits due to new laws can be lost. When building up wealth, the expected profit is decisive and not the hope for tax advantages. You can neglect these when choosing.

9. Inflation lowers your wealth

Building wealth is a long-term process. Over the years, however, money loses some of its value due to inflation. For example, if you decide on an investment that pays 1% interest per year and inflation is 2% over the investment period, then there will be a loss of value. You must keep this mechanism in mind in your considerations and take it into account.

10. Fees and costs reduce your return on wealth accumulation

Avoid unnecessary costs and fees. Money transfers, stock deals and movements in your portfolio are almost always associated with expenses. And those expenses reduce your bottom line. This is why you shouldn't rearrange and change your systems too often. This is usually also associated with costs.

You can already avoid fees when choosing the provider. For example, when trading stocks, the custody costs are very different. Therefore, inform yourself in detail about the costs involved.

Already knew? The rule of 72 gives you a simple formula for building wealth. You can calculate how long it will take for your invested capital to double with the same profits. You divide 72 by the current interest rate and you get the time until you double your stake. For example, if you invest your capital in an equity fund that generates a return of 5%, the following calculation applies: 72 ÷ 5 = 14.4 years.

5 tips on specific forms of investment

There are many forms of investment for building up wealth: with stocks, real estate, fixed-term deposits, bonds and Pfandbriefe, a foreign currency account, the good old savings book and much more. Each has its own opportunities and risks.

11. Broad diversification in asset accumulation protects against losses

If you put all your money into a single investment, you run a high risk. For example, if you have only acquired shares in several companies in a certain industry and there are losses on the stock market in this area, you will lose a lot of money. The mix of your investments helps against this. If you diversify widely across multiple forms such as stocks, time deposits, overnight deposits, and funds, you spread the risk. Losses on the one hand can be offset by profits on the other.

12. Shares allow high returns, but only in the long term and with risk

Investing in the stock market promise a high return. The German share index (DAX) shows the values ​​of the 30 largest companies in the German share market. He achieves an overall average return of 7 to 9% per year. However, there are always years with losses. That is why you need patience over a long period of several years when trading stocks. But there is no guarantee of high profits. As a rule, investments with high profit expectations also involve high risk.

13. Funds offer broad risk diversification and security in asset accumulation

The money of many investors is bundled in an investment fund. A fund manager manages the fund and distributes the money in the financial markets, for example in stocks or bonds. In this way, he ensures a broad diversification of risk. Depending on the focus of the investment, a distinction is made between equity, bond, real estate funds and mixed funds. One advantage of funds is their high level of liquidity. You can return your shares at any time and thus get your money. In addition, the investors' money is legally protected by a deposit guarantee, it cannot be lost in the event of company bankruptcies.

14. Building up assets with real estate is worthwhile under certain conditions

Investing in concrete gold can ideally complement your wealth accumulation strategy. If you use the property yourself, you save possible rental costs in old age. And when you rent out the house or apartment, you benefit from the rental income.

The current interest rates for real estate financing are still low, as a look at our real estate finance comparison shows. There are other good reasons to buy a property as an investment. This includes a long-term increase in value and a high level of protection against inflation, as the average rental yield has been significantly higher than the price increase in the past few decades. But keep in mind:

  • A crucial factor when buying a property is the location. You can only achieve high rental income if the situation is right. However, this also entails a risk when buying real estate. Because an attractive location can change over the years, for example if the population structure changes or the infrastructure deteriorates. Tips on how to assess the location of a house can be found in our guide to the real estate situation.
  • Set aside maintenance reserves of around 1% of the purchase price every year - there is always something to repair, renovate and modernize real estate.
  • Do you like the role of landlord? That brings with it some duties and obligations like property management and communication with the tenants.

15. There are new forms such as ETFs and crowd investing to build wealth

In recent years, financial products that combine a manageable risk with the possibility of low investments have become very popular. These include the ETF (exchange-traded fund) and crowd investing.

  • An ETF is a listed index fund that tracks a specific stock index such as the DAX or the Dow Jones. When you buy an ETF, you can get high returns of 5 to 8%. In addition, you can regularly deposit money with an ETF savings plan and thereby increase your profit.
  • With crowd investing, many private investors invest in projects or companies. The most common form is real estate investment. The advantages include low minimum deposit amounts and short terms.

Info! Stiftung Warentest recommends ETFs if you want to build up a small fortune for your children over the years. The advantages are the relatively high interest rates and the low administrative costs of the index funds. With some you can start with little money, with 25 € per month. You can find out more about this in our article on saving for children.

Conclusion: how do I build up a fortune?

If you want to successfully invest your money in order to build a fortune, you need three essential requirements.

Important prerequisites for wealth accumulation:

  • Awareness of the opportunities and risks of investing: this is how you avoid losses.
  • A strategy for selecting the best investments: You can use it to search for suitable investments.
  • Patience and time: this is how you survive price fluctuations.

It is best to start right away by implementing the tips and getting started with your wealth accumulation. The earlier the better.

Who already knows all the details and options relating to wealth accumulation? Advice can be helpful. Fee advisors offer you completely independent financial advice. These do not earn from a commission for mediation, but from the fee, regardless of recommendations. Information on this service can be found at the Association of German Fee Advisors.