High-yield investments: paths to financial freedom in 2025
Current inflation is causing some problems and causing prices to skyrocket. Over a long period of time, your money can be devalued in this way, meaning that you can buy less and less for the same amount. You may wonder how you can protect your assets from inflation by getting more profit. In this article, you will learn more about high-yield investments and possibly find suitable asset classes for you.
In brief:
- The rising inflation rate devalues your money – over time, you can buy fewer products and services for the same amount.
- Germany’s pension problem means that fewer and fewer people are paying into the pension fund. A large return can protect against poverty in old age.
- Diversifying your investments across asset classes like P2P and ETFs will help you maximise returns.
That is why high returns are important.
There are many different reasons for investors to put their money to work. Perhaps you want to provide for yourself and your family financially and are therefore looking into investing. You may want to invest money for children to make their start in life easier. Or you may want to build up a passive income to achieve financial freedom.
All investors have one thing in common – they want to achieve returns. Especially in today’s world, it is important that you learn about investing and strong returns in order to learn how to grow your wealth. Find out below why this is so important.
Rising inflation rate – offset by interest?
Prices in a market economy change constantly. This may affect individual products or prices may rise in general. A general price increase is also called inflation, which is associated with some particular difficulties.
Attention!
The biggest problem for private households is the devaluation of their own money when inflation is high. The prices of services and products increase, while people can afford less and less for the same amount.
While secure investments such as savings accounts and call money accounts used to offer some interest, this is no longer the case. Asset classes like these are not enough to offset inflation. Those who do not look for investments with strong profit prospects will lose money in the long term.
The pension problem – pension enhancement through major yield opportunities
The pension is currently a major problem in Germany. People who are currently working pay a portion of their wealth into the pension fund. Older people who are no longer working receive their pension from this pension fund. However, for this principle to work in the long term, enough people have to pay into the pension pot.
The following problems currently exist in relation to pensions in Germany:
- There are more older people in Germany, which means there are also more people who receive a monthly pension.
- Fewer children are being born, which means that in the long term there will be significantly fewer people in work paying part of their wages into the pension fund.
- Thanks to ever-improving medical care, life expectancy has increased dramatically and continues to do so. People who live longer receive a monthly pension for a longer period of time.
These reasons show why there is less and less money coming into the pension pot, while more and more is being paid out. In the long term, this principle cannot work and pension funds will face major problems, which will increase old-age poverty.
These investments offer potential for top yields.
The problems mentioned, such as the rising rate of inflation and the increasing uncertainty of pensions, show how important it is to take a critical look at one’s own finances. Generating an attractive return offers a solution to both problems.
ETFs – Attractive opportunity for returns with broad diversification
ETFs are exchange-traded index funds. They represent a passive form of investment with a long investment horizon. They are an excellent way to build up a fortune over the long term.
ETFs invest in stocks or bonds and track indices. One example would be the DAX, the German stock index that tracks the 40 largest companies in Germany. So investing in an ETF gives you the average performance of the respective index that the ETF tracks.
In contrast to investing in individual stocks, ETFs offer you a decisive advantage: diversification, i.e. spreading your investments across different companies, lowers the risk of your asset class. If one company goes bankrupt, your investment can absorb this with the performance of the other companies.
Invest in a world ETF
One recommendation for an ETF with a high yield is the MSCI World global ETFs. These are particularly diversified ETFs that invest in different industrialised countries and sectors. This asset class is broadly diversified and protects against cluster risks.
Another advantage is the passive way of investing. In contrast to active funds, ETFs work passively. There is no fund manager to select the securities individually. This ensures that the fees for this investment are particularly low, usually well below one per cent.
In addition, ETFs do not require a great deal of effort on your part as an investor. Once you have familiarised yourself with how they work, you simply select an ETF and invest automatically. This way, your investment works automatically every month without any additional work on your part.
The advantages of ETFs at a glance:
- A low-cost form of investment: the fees are quite low because no fund manager is required.
- Security: If you follow the basic rules of investing and do extensive research, ETFs may be the best low-risk investment. Diversification can help lower the overall risk of your portfolio.
- Attractive yield opportunity: an ETF achieves the average performance of the respective index that it tracks. Since there are theme ETFs that specialise in certain industries, the yields differ. A global world ETF is recommended, especially for beginners, to avoid cluster risks.
- Suitable for beginners: This type of investment is easy to understand and suitable for beginners. It is also possible to invest small sums.
P2P – Attractive interest rates through lending
Peer-to-peer essentially means ‘from one private individual to another’. It involves a transaction between two private individuals that comes about through a P2P platform. A lender grants a loan to a second person without the need for a bank.
Trading in P2P lending offers various advantages:
- Transparency: The majority of P2P lending is easy to understand and transparent. The terms of the lending are fixed. Borrowers are categorised into different credit ratings to give investors an overview of the security of each loan.
- Attractive interest rates: The P2P asset class offers you attractive prospects. Lending in a higher risk category offers a higher chance of interest.
- Diversification: Online tools enable you to build an individual strategy. To increase security, it is recommended that you diversify sufficiently into lending with different risk ratings to reduce the overall risk of the investment.
- Purpose: Perhaps it is important to you as an investor to put your money in a meaningful asset class. Crowdlending enables investors to engage in lending to private households – much faster and less complicated than with a bank. This way, private projects can be supported.
The chance of making big profits goes hand in hand with risks. On the one hand, there is a default risk if borrowers are unable to repay the borrowed money including interest. Also, P2P platforms are comparatively young, which is why it can happen that the creditworthiness of loans is misjudged.
Attention!
To reduce these risks, the asset class should be sufficiently diversified. For this reason, we recommend that you only invest in European loans. Not only should you diversify according to the credit ratings of the loans, but you should also invest in different P2P platforms. This way, you will often benefit from a bonus.
Another advantage is the low investment amounts. Even beginners with perhaps low income or little experience have access to investing in P2P lending. Moreover, it is an easy-to-understand asset class.
How to make a profit from stocks
If you are interested in the topic of investing, you may have already asked yourself: ‘Should I buy stocks now?’ A stock is a security that allows you to become a co-owner of a public limited company. This entitles you to rights such as attending the annual general meeting or receiving dividends.
But what are dividends? They are a form of profit sharing that shareholders receive from a company. Whether and in what amount dividends are paid is decided at the company’s Annual General Meeting. You can use dividends to generate a passive income.
You should know that it is much riskier to invest in individual stocks than in ETFs, for example. If you buy a few individual stocks, you cannot benefit from diversification and the associated security. While P2P and ETFs are also suitable for beginners, investors with individual stocks should have more experience.
Stocks also have some advantages:
- Opportunity for strong price performance and dividends: The respective profits achieved vary greatly. When buying individual stocks, personal experience and basic knowledge play a more important role than in the previously mentioned asset classes.
- Potential for a passive income through dividends
- Flexible to trade: You can buy and sell stocks on the stock exchange at the current price. Stocks are significantly more flexible than asset classes with, for example, a minimum investment period.
- Wide selection: As a shareholder, you can choose from thousands of listed companies.
Attention!
Buying individual stocks requires significantly more knowledge and experience than investing in ETFs and P2P. You can invest in several hundred or thousand stocks with the help of an ETF. The lower diversification of individual stocks makes the investment riskier.
High-yield investments – profit opportunities through ETFs and P2P
Classic financial investments such as savings accounts and call money accounts are not enough to combat inflation. If you only invest your assets in such asset classes, you will suffer losses in the long term because inflation devalues your money.
Another problem is the German pension. Because fewer children are being born and people are living longer, not enough workers are paying into the pension fund. In the long term, a great many people will be affected by poverty in old age.
One solution to both problems is to invest in high-yield investments. This way, you can fight inflation on the one hand, but also provide for your old age or take care of your family. To make a lot of profit, a long investment horizon is important in order to benefit from compound interest.
Two promising ways to earn interest are ETFs and P2P lending. Higher returns also come with risks. However, if you follow the basic rules of investing, such as diversification, you can reduce the risk of your investments and achieve attractive profits.
FAQ – Frequently asked questions about high-yield investments
