1. Keep a Cool Head 

In economically stormy weather, it’s tempting to react emotionally. However, such reactions are not always beneficial. Market downturns are unpleasant but part of the investing journey. Those who act out of fear often miss the recovery that follows shortly after. In times like these, calmness and patience are your greatest allies. 

2. Diversify – stay close to home

Diversification is essential in any market, but especially when volatility is high. By spreading your investments across different sectors, regions, and types of companies, you limit risk and increase your chance of stable returns. Don’t put all your eggs in one basket — build a well-balanced, resilient portfolio. But diversification doesn’t always mean going global. In fact, focusing on stable, locally rooted companies can be a smart move — especially now. 

That’s why Invesdor offers direct investments in Northern European companies — businesses that are not only based here but also generate most of their revenue within the region. These are companies you can understand, support, and grow with. Unlike many stock-listed multinationals with high exposure to global uncertainty, our companies are anchored in local economies and have a strong regional focus. 

What exactly does investment diversification mean?
The article “Investment Diversification Made Simple” explores key principles in more detail, provides concrete examples, and offers helpful context.

3. Look Beyond the Stock Market

One of the advantages of direct investing is the ability to invest in non-listed, local companies — businesses that are not subject to daily stock market fluctuations and short-term investor sentiment. These companies, often rooted in local European communities, tend to have a long-term focus and sustainable growth ambitions. By supporting them, you’re investing in the strength and resilience of the (Northern) European economy. 

4. Invest in Sustainable Companies

Sustainable businesses — those focused not just on profit but also on people and the planet — often prove more resilient in uncertain times. These companies build for the long term, maintain strong relationships with stakeholders, and take a future-focused approach. Especially now, it’s worthwhile to support businesses that aim to make the world a better place. 

In Conclusion: Think Long-Term 

Economic shocks are often temporary. A well-diversified portfolio, on the other hand, is built to last. Don’t get caught up in the noise of the moment. History shows that markets tend to recover after periods of turmoil. At Invesdor, we help you invest directly in companies that matter — close to home, with a long-term vision. Stay calm, stay close, and invest wisely. 

The post Direct investing in turbulent times: stay calm and diversify  first appeared on Invesdor - Blog.

The phone buzzes. Inflation hits a new high, it says. “I really need to get a better grip on my finances.” This thought often creeps in somewhere between the supermarket checkout, a push notification, and a bank balance. Suddenly, the prices in your cart feel twice as expensive. Behind you, someone is talking about bonds, investments, and returns. And on the way home, you wonder where to even begin. Terms like interest rates, sustainability, and other buzzwords swirl around you. 

The savings account is losing value, retirement plans seem shaky, and trust in old financial models is crumbling. At the same time, there’s a growing desire to use money meaningfully—not just to grow it, but to shape something with it. Investing in ideas, in the future, in responsibility. 

But how do you get started? Books open your eyes to connections, tell the stories behind the markets, and show how our thinking about money shapes our lives. They’re more than just advice. 

We’ve selected these ten books for anyone who wants to understand how money, values, and the future are interconnected. And for those who want to invest smarter, more consciously, and with greater purpose. 

Why engage with investing?

More and more people want to take responsibility – over their wealth, their future, and their values. It’s about:

• Planning ahead: State pensions are no longer enough for many. Private investments are becoming a second pillar. 
• Autonomy: When you invest, you decide what happens with your money. 
• Values: Sustainable and social investments are gaining importance. Returns alone are no longer convincing. 
• Security: In uncertain economic times, knowledge creates stability

Invesdor is a platform that offers access to investment projects that combine returns with responsibility, through crowdinvesting, equity, or convertible bonds, with transparency and impact. But how do you choose? A solid understanding of investing is key. That’s why we’ve put together a list of finance books that can help you make informed decisions in 2026 to invest and grow your money.

How the list was created 

This list isn’t based on sales figures. Each book was decided for the value it brings to you as an investor. The criteria: 

• Current topics and fresh perspectives 
• Practical relevance for real-world investment decisions 
• Clarity, even without a finance degree
• Connection to sustainable or alternative investments
• Readable and inspiring 

The 10 Best Finance Books of 2025  

1. The Big Pivot, Andrew S. Winston 

What it’s about: This book explores how companies and investors are aligning with sustainable strategies in the face of climate change, resource scarcity, and increasing transparency. It offers ten proven, practical approaches. 
 
Why we recommend it: ESG and future-proof investing are key themes for 2025 and will remain so in 2026. 
 
Who it’s for: Investors who want to take a long-term, impact-oriented approach.  
 
Link: https://amzn.eu/d/9W05B4t 

Take-away: The future is strategy. If you understand it, you invest better.

Good fit if 
You prefer sustainable investments 
You assess companies based on impact 
You think long-term

Not for you if 
You’re only after short-term gains 
You want to stick to traditional metrics 
You’re not interested in deeper strategic thinking

Better suited alternative: Thinking in Bets von Annie Duke, if you’re looking to structure decisions and risk in a more pragmatic way. 

2. Thinking in Bets, Annie Duke

What it’s about:  Poker champion Annie Duke explains how to make smarter decisions under uncertainty. Encourages rational thinking over prediction-based guesswork. 
 
Why we recommend it: Especially useful for alternative investments. 

Charles Duhigg, author of The Power of Habit and Smarter Faster Better, says: “With wonderful storytelling talent and subtle humour, Annie Duke has created the ultimate guide to dealing with risk. We can all learn to make better decisions by learning from someone who earned a living making decisions where millions were at stake.” 

Who it’s for: Anyone exploring crowdinvesting, start-ups, or other higher-risk investments. 
 
Link: https://amzn.eu/d/2vLu5pQ 

Take-away: Better decisions come from understanding, not resisting, uncertainty. 

Good fit if: 
You want to improve your decision-making 
You invest actively and manage risk 
You’re exploring alternative investments 

Not for you if: 
You prefer passive, automated strategies 
You dislike self-reflection 
You expect fast, emotional results 

Better suited alternative: The Psychology of Money von Morgan Housel, if you are looking for a more accessible introduction to behavior. 

3. The Psychology of Money, Morgan Housel

What it’s about:  Behavioral finance lessons on money, wealth, and contentment. Shows how emotions influence our investment decisions.
 
Why we recommend it: In 2025, uncertainty and distractions dominate – behavior drives returns. 
 
Tim Hale, author of Smarter Investing – Simpler Decisions for Better Results, says: “Morgan Housel’s new book uses razor-sharp and accessible insights to illustrate that building wealth is a matter of mindset, not investment. This is the first book every investor should read.” 
 
Who it’s for: Beginners and professionals who want to sharpen their thinking about money. 
 
Link: https://amzn.eu/d/7G2RDni 

Take-away:  Financial intelligence is less about knowledge and more about behavior. 

Good fit if: 
You want to understand and improve your mindset 
You invest calmly and with a long view 
You appreciate storytelling and examples 

Not for you if: 
You expect technical strategies and formulas 
You only want finance jargon 
You don’t plan on reflecting 

Better suited alternative: Adaptive Markets von Andrew W. Lo, if you prefer an analytical theoretical perspective on markets. 

4. Quit, Annie Duke

What it’s about:  How to know when to walk away from a decision. Duke shows that quitting at the right time is smarter than persisting at all costs. 
 
Why we recommend it: Risk management is crucial in 2025, especially in VC and crowdinvesting. 
 
Who it’s for: Investors who want to consciously define exit criteria. 
 
Link:  https://amzn.eu/d/5YK5dUe 

Take-away: Success comes when you let go at the right time. 

Good fit if: 
You actively manage investments and risks 
You want to detect mistakes early 
You make decisions analytically 

Not for you if: 
You stubbornly stick to plans 
You rely on gut feeling 
You dislike questioning strategies 

Better suited alternative: Thinking in Bets, to first build a stronger decision-making foundation. 

5. The Business of Venture Capital, Mahendra Ramaswamy  

What it’s about: Guide to establishing and managing venture capital funds, including fundraising, investment structure, portfolio development, value creation, and exit strategies. With checklists, case studies, and practical expertise from experts. 

Why we recommend it: Venture capital remains a key area within alternative investments. This book offers strategic insights and practical tools straight from the source, valuable for investors as well.
 
Who it’s for: Aspiring and experienced VC professionals, fund founders, business angels, limited partners, start-up investors, and MBA students. 
 
Link: https://amzn.eu/d/4zdvLzC  

Take-away: Those who understand how venture capital works invest more successfully in the long term. 

Good fit if: 
You want to invest in start-ups or companies 
You want to understand deal structures 
You see equity as a strategy 

Not for you if: 
You don’t have time for technical topics 
You prefer narrative-driven books 
You stick to very simple products 

Better suited alternative: Richer, Wiser, Happier by William Green, if you would rather understand investments through the personal principles and experiential knowledge of successful investors. 

6. The End of ESG, Phil Gramm and Terrence Keeley

What it’s about:  A critical analysis of why ESG needs reform and how impact investing can be made more effective.
 
Why we recommend it: Der ESG-Diskurs prägt 2025 Anlagepolitik, Regulierung und Produkte. Dieses Buch ordnet ein und öffnet Perspektiven. 
 
Who it’s for: The ESG discourse is shaping investment policy, regulation, and products in 2025. This book provides context and opens up new perspectives.
 
Link : https://amzn.eu/d/2v80Uek 

Take-away: Sustainability needs clear goals and measurable impact.

Good fit if: 
You want to truly understand ESG 
You structure portfolios based on impact 
You’re open to critical debates 

Not for you if: 
You’re just looking to validate your ESG routines 
You’re not interested in methodology 
You chase returns without considering impact  

Better suited alternative: The Big Pivot, if you want to see sustainability in a more practical way in everyday business life. 

7. How Big Things Get Done, Bent Flyvbjerg

What it’s about:  Success principles for projects big and small, from mega ventures to start-ups, from Olympic stadiums to kitchen renovations. With clear, data-driven strategies for delivering projects on time, on budget, and with realistic expectations. 
 
Why we recommend it: Whether it’s real estate, infrastructure, or a start-up: project competence determines returns. This book delivers the formula for success, scientifically grounded and highly practical.
 
Who it’s for: Investors, project managers,
entrepreneurs and anyone who wants to plan and implement ambitious projects more effectively. 
 
Link:  https://amzn.eu/d/828Uyin 

Take-away: Good projects result from good planning and realistic risk management.  

Good fit if: 
You want to understand project logic 
You’re evaluating real estate or infrastructure investments 
You value practical case studies 

Not for you if: 
You’re not interested in real-world project applications 
You only read about capital markets 
You prefer theory without case studies 

Better suited alternative: Adaptive Markets, for more market model focus over project practice.  

8. Adaptive Markets, Andrew W. Lo

What it’s about:  A new market model that combines classical financial theory with insights from psychology, neurobiology, AI, and behavioral economics. Lo shows that markets are not stable systems, they evolve. And so does investor behavior.

Why we recommend it: In times of innovation, AI, and crises, this book offers a deep understanding of how markets truly function, beyond black-and-white thinking between “rational” and “irrational.”
 
Who it’s for: Advanced investors, financial professionals and interested parties who want to gain a deeper understanding of theories and market dynamics. 
 
Link: https://amzn.eu/d/9bSYCDa 

Take-away: Markets are adaptive. Those who understand their dynamics can spot opportunities and avoid poor decisions.

Good fit if: 
You want to link theory with practice 
You want a structured view on market dynamics 
You enjoy analytical reading 

Not for you if: 
You want a narrative, beginner-friendly entry point 
You dislike models and formulas 
You want quick, practical tips 

Better suited alternative: The Psychology of Money, for a behavioral view without the theoretical burden. 

9. What We Owe the Future, William MacAskill

What it’s about: A philosophical case for “longtermism” – the idea that our actions today fundamentally shape the quality of life for future generations. MacAskill shows how we can take ethical, political, and technological responsibility for a livable future.
 
Why we recommend it: Sustainability doesn’t end with CO₂ emissions. This book broadens the perspective and offers an ethical framework for long-term thinking, also in the context of investing, technology, and societal development.
 
Who it’s for: For anyone who wants to meaningfully connect ethical responsibility, future-oriented thinking, and capital, whether as an investor, entrepreneur, or citizen.
 
Link: https://amzn.eu/d/3niocq2 

Take-away: Capital shapes the future. But only long-term responsibility secures it.

Good fit if: 
You think long-term 
You integrate values into investment decisions 
You want to measure impact 

Not for you if: 
You only chase short-term metrics 
You want to separate ethics from investing 
You expect product comparisons 

Better suited alternative:The Big Pivot von Andrew S. Winston, if you prefer to view long-term responsibility in terms of concrete, business-oriented strategies and corporate practices.

10. Richer, Wiser, Happier, William Green 

What it’s about:  Conversations with successful investors.
This book offers insights into the mindset of legendary investors – from Sir John Templeton to Charlie Munger, ETF pioneer Jack Bogle to mathematician Ed Thorp, Will Danoff to globally focused Laura Geritz, Indian value investor Mohnish Pabrai to Joel Greenblatt and Howard Marks, whose memos Warren Buffett never missed. It reveals what drives their success and offers inspiration that goes far beyond money.
 
Why we recommend it: Learning curves from real-life biographies are both applicable and motivating.
 
Who it’s for: Anyone who wants to learn from best practice. 
 
Link: https://amzn.eu/d/eItx6yh 

Take-away: There are many paths to success. What matters are your own principles. 

Good fit if: 
You’re seeking tested mindsets and behaviors 
You value real-world stories 
You want to refine your own investing playbook 

Not for you if: 
You only want hard theory and formulas 
You expect step-by-step instructions 
You prefer impersonal case studies 

Better suited alternative: The Business of Venture Capital—if you want to dive deep into formal equity structures. 

Conclusion: Knowledge is the most reliable investment  

These books don’t replace financial advice, but they expand your perspective. They help you understand markets, avoid thinking traps, and act with clarity. 

Whether you’re just starting out or growing your portfolio: a good book is often the first step to better decisions. 

Read mindfully. Think forward. Invest the way you want to live: consciously, informed, and with impact. 

FAQ – Frequently asked questions about financial books 

Invesdor – Investing with impact. 
Crowd investing, bonds, equity. 
Knowledge builds trust. Trust builds the future.

The post Understand more, invest better: the 10 best finance books for 2026  first appeared on Invesdor - Blog.

Getting started with investing in impact start-ups can feel overwhelming, especially when evaluating risk and return potential. That’s why we at Invesdor Group provide investors with a unique opportunity to efficiently diversify into start-ups – an advantage typically reserved for those with large portfolios. As Europe’s leading impact investing platform, we enable investments across various sectors, company stages, and geographies, making start-up investments & equity funding more accessible while maximizing both financial and ethical returns.

1. Think big: Why market potential is key to start-up success

When investing in start-ups, one of the first questions to ask is: How big is the market? And: How fast is it growing?

Market potential is a measure of the total revenue or sales opportunities available for a product or service. It reflects the demand for the solution a start-up offers and provides insight into the scalability and profitability of a business idea. Start-ups operating in large, rapidly expanding markets – such as clean energy or artificial intelligence – are far more likely to scale successfully than those targeting stagnant or niche markets.

What to look for:

• Size of the market: Is the market large enough to support significant growth?
• Growth trends: Is the market expanding, and at what rate?
• Market share potential: Can the start-up capture a meaningful portion of the market?

INVESDOR pro tip:

For larger investments, take the time to research market reports, study competition, and analyze barriers to entry. If you’re investing smaller amounts, focus on diversifying across different start-ups to reduce risk. Invesdor’s project pages provide detailed market overviews, helping you make an informed decision. Before each project goes live, our team of due diligence experts also does an in-depth market analysis. Only a few selected companies pass all criteria and make it on to our platform.

2. Solving real problems: The importance of product-market fit

Does the start-up’s product or service solve a real problem? A clear product-market fit is critical for long-term success. Start-ups and scale-ups that address pressing needs or solve significant problems are more likely to attract customers and grow. A company using artificial intelligence to detect contaminated water has higher growth potential than one offering a less impactful and innovative solution. At Invesdor, our experienced team rigorously evaluates product-market fit to select only the most promising opportunities.

What to look for:

• Competitive advantage: Does the start-up offer something unique or significantly better than competitors?
• Customer demand: Is there a proven need for the product or service?
• Scalability: Can the solution be scaled to meet growing demand?

INVESDOR pro tip:

On each project page, we have a “why invest” section with some of the most important arguments for investing in the company. In the “business model” section, you can find a detailed description of how the company operates and generates revenue. The “market” section gives you an overview of the company’s market environment, barriers to entry, and characteristics of this specific market.

3. The power of people: Why a strong team matters

A start-up’s success largely depends on its team. A strong, experienced team can execute ideas effectively and adapt to challenges as they arise.

What to look for:

• Industry expertise: Do the founders and key team members have relevant experience?
• Track record: Have they successfully navigated challenges in the past?
• Passion and perseverance: Are they genuinely committed to their vision?

INVESDOR pro tip:

Review the team’s profiles on the company’s project page at Invesdor to get insight about the key team members’ experience, expertise, and role at the company. Our team ensures all start-ups presented on our platform meet stringent criteria before being presented on the platform, including a thorough assessment of their team’s expertise and vision.

4. Financials and valuation: Keep an eye on the numbers

A start-up’s financial health and valuation are key indicators of its viability. While start-ups often lack an extensive financial history, understanding their revenue projections, burn rate, and valuation is essential. Start-ups with high burn rates (spending a lot) can be risky, especially if they are far from profitability. Remember that risk should always be offset with a higher expected return! 

In this context, it is crucial to assess the company’s viable exit opportunities, as these determine how investors can recover their capital – ideally with a return on investment. Professional investors place significant emphasis on exit potential when evaluating opportunities. In practice, the most common exit strategies for innovative, high-growth companies include mergers and acquisitions (M&A), initial public offerings (IPOs), and management buyouts (MBOs).

What to look for:

• Burn rate and runway: How quickly is the company spending its funds? And what are future funding needs?
• Revenue projections: Are the forecasts realistic? 
• Valuation: Is the start-up reasonably valued compared to competitors?
• Exit opportunities: Does the company have a clear path to liquidity for investors?

INVESDOR pro tip:

Revenue and EBITDA are two figures that give you insights about the expected company growth. For software companies, pay close attention to metrics like Annual Recurring Revenue (ARR). Invesdor’s project pages provide detailed financial insights to help you make informed decisions.

5. Invest with heart: Aligning your values and interests

Investing in start-ups isn’t just about numbers; it’s also about connecting with companies that align with your values and interests. When you invest in fields you understand, you gain a competitive advantage. 

If you’re passionate about climate protection, consider investing in companies like RiverRecycle, a company that developed a machine to remove garbage from rivers. For MedTech enthusiasts, a company like PIRCHE – who use AI to revolutionize organ transplants – could be a good fit. At Invesdor, we follow a strict “no harm”-policy. The companies we present on our platform should have no harmful impact on the environment, society or the economy. We highlight companies that have committed themselves to contributing to the United Nations’ Sustainable Development Goals (SDGs) with our “OnePlanet” label. By doing so, they not only do no harm, but they also actively do good to achieve those goals. Information about the specific SDGs a company is contributing to can be found on the project page. 

What to look for:

• Personal Connection: Does the start-up’s mission resonate with your professional background or personal interests?
• Moral Identification: Does the company align with your values, such as sustainability or social impact?

INVESDOR pro tip:

Before making your first investment, define your investment goals and identify who you are as an investor. Is financial return your only goal or is it important for you to also make a positive impact with your investment? Are you ready to take risks to maximize returns or would you rather accept smaller returns for a bit more security? 

Conclusion

Finding the right start-up investment involves balancing market analysis, industry knowledge, and a clear understanding of the team, financials, and personal values. At Invesdor, our experts analyze hundreds of opportunities each year, offering only the best options to our investors.

Start your journey with Invesdor today. Explore curated impact investment opportunities across diverse industries and countries – and invest in growth companies striving for positive change in the world. Together, let’s build a portfolio that aligns with your goals and values.

The post 5 essential criteria for investing in impact starts-ups: A guide for private investors first appeared on Invesdor - Blog.

Beets & Roots in a nutshell  

beets&roots is a German fast-casual restaurant chain that offers healthy and environmentally friendly food. Beets & Roots GmbH was founded in 2016 in Berlin by entrepreneur Max Kochen and Michelin star chef Andreas Tuffentsammer to meet the need for healthy lunch options for busy people.  

Today, beets&roots has 16 restaurants across Germany. With Beets & Roots GmbH’s latest successful funding round at Invesdor, they plan on opening three more restaurants at the main train stations in Berlin, Cologne and Hamburg. In an interview from 2023 Max Kochen outlines beets&roots growth journey after previous funding rounds with Invesdor. 

Opportunity to higher returns on investment 

Beets & Roots GmbH has raised a total of five funding rounds on Invesdor’s platform (see chart for more information).  In the latest funding round, beets&roots experienced exponential growth, more than doubling its turnover and attracting over 1.5 million euros from investors across Europe. With each round, investors were not only drawn by the financial opportunities but also by enticing bonuses, including up to 50% discounts on orders, enriching their investment experience. 

For the first time Beets & Roots GmbH’s funding round was offered on all Invesdor websites: Germany, Austria, Finland, the Netherlands, and the English website welcoming investors from all over Europe. Previous rounds have only been open to investors in Germany and Austria. 

Beets & Roots GmbH has chosen different financial instruments for their funding rounds throughout the years. This demonstrates well how growth companies and investors benefit from the different financial instruments Invesdor has to offer.  

In their last round in January 2024 Beets & Roots GmbH decided to raise equity. Equity investments offer investors a stake in the target company allowing the investors to reap the full potential upside in the company. As Beets & Roots GmbH is aiming for an exit in 2026, the investors have the opportunity to earn a substantial return on their investment in the coming 36 months. 

Make an impact with your choices 

By investing in innovative and sustainable businesses, investors do not have the opportunity for a financial return but also make an impact by helping companies like Beets & Roots GmbH drive sustainability and a better future for Europe. Read more about Invesdor’s commitment to impact investing. 

Beets & Roots GmbH is committed to drive sustainability in all parts of their business. In practice, they source most of their ingredients from local suppliers and promote sustainable farming practices by working with Klim.  

As a consumer you can be at the forefront of change for a sustainable future of Europe by choosing a plant-based alternative to meat and opt for reusable takeaway packaging. 

As an investor you can be at the forefront of change for a sustainable future of Europe by investing in companies driving sustainability in their operations. Your choice matters! 

If you want to stay informed about upcoming investment opportunities, sign up for our newsletter and follow us on our social media channels.  

The post Beets & Roots is an investor favorite at Invesdor first appeared on Invesdor - Blog.

Mistake 1: Never try to predict the future

Do you sometimes wish you had a crystal ball that would show you tomorrow’s stock market prices? If you had one, you would probably have Apple and Google shares in your portfolio and be a multi-millionaire with Bitcoin investments today.

But hand on heart, would you really have invested your money in a computer manufacturer that was about to go bankrupt in 1997? Or invested even a single cent in a strange thing called a search engine, where no one knew how it was supposed to make any money at all? And if you did, wouldn’t you rather have chosen the then leading search engine providers Altavista, Yahoo or Lycos instead of Google?

You have never heard of these companies? That’s not surprising, some of them don’t even exist anymore, the others are only a shadow of their former greatness. And did you really know bitcoin before it cracked the record high of just under $20,000 in December 2017?

Don’t overestimate your skills in timing and market analysis

As an investor, it is best not to even try to predict the development of stock market prices. Don’t overestimate your own analytical skills either. Many things are hard to predict, even for experienced investors who get their information from the press, specialist portals or “unfiltered” internet sources. Just think of the last few years; the enormous impact of the Corona crisis on the economy and society was hardly expected.

Professional investors, with technical and personnel support, can certainly manage to beat the market. But they are few and they do their market monitoring as a full-time job and practically around the clock.

Nevertheless, many investors regularly try to predict price developments – and fail. Every now and then, an investor will succeed in entering or exiting the market with perfect timing. If it works, it is often called skill. If it doesn’t work, then it was certainly not because of one’s own skill.

And for many it didn’t work out and they preferred holding on to Lycos or Yahoo shares rather than those of Apple and Google. 

Mistake 2: Putting all your eggs in one basket and not diversifying

“Never put all your eggs in one basket.” – This age-old truism must be mentioned again and again. If only one thing does not go as planned just once, all eggs are quickly broken.

It is the same with investing. Those who put all their eggs in one basket take far too high a risk. Many investors tend to act emotionally and invest in hype stocks or in “the top investment of the hour”, for example.

Of course, anyone can put the next biotech stock in their portfolio that is “very close” to the successful development of a Covid vaccine – but just as an admixture to take advantage of opportunities or to spread the risk further. Do not let yourself be influenced by the daily flood of news and rather invest according to firm, long-term oriented principles.

Diversification – Spread your money over different investments

Try to create a portfolio that is ready for any market situation. It is best to spread your capital across various asset classes and it is important to invest in different markets and sectors, for example, not only in the German car industry or only in American tech stocks. Don’t just put money into real estate or into a single crowdinvesting project in the hospitality sector.

For investors, it is advisable to have a portfolio that is structured as globally as possible and spread across different asset classes and is also prepared for special situations such as the Covid crisis. This is exactly why the legendary investor Ray Dahlio designed the so-called “all-weather portfolio” about 30 years ago. 

Mistake 3: Accepting to high costs

The more natural ingredients are processed with industrial additives, the higher the price goods can be sold at – and the more unhealthy it usually gets.

The situation is similar with financial products. Many financial investments are basically simple in structure but are “processed” by the financial industry and thus complicated.

And what appears to be complicated and somehow well thought-out is often accompanied by very high costs. Especially complete solutions that are supposedly structured with the customer in mind often contain high fees. Building loan contracts are combined with various life insurance policies. Advertised as “safe” and “sensible”, they are actually just expensive and so complicated and convoluted that no one understands them.

For that reason, don’t get lured by well-meaning advertising promises and always pay attention to the costs of a financial product. After all, the costs have a significant effect on the effective return, even if it is “only” one or two percentage points. The impact of fees on performance can be serious over the years, as our example shows:

Investment fund with + 5.00 % performance p.a.:

Mistake 4: Making conclusions for the future from the past

People like to do it, but it is highly problematic: projecting the historical development of an investment into the future.

Just because a fund has performed well in the past does not mean that it will do so in the future. Inferring the future from the past is usually as fruitless as trying to predict share prices. You simply cannot know what the future will bring.

There are also changes in fund management, a change in investment strategy or social changes that affect the performance of many investment models.

Would you like some examples?

• The shift away from fossil fuels and the politically desired energy turnaround (keyword: nuclear phase-out) has deprived many electricity companies of their lucrative business basis.
• More photos are being taken today than ever before, but the old-established photo and camera manufacturers are not the beneficiaries of this boom. Software companies from Silicon Valley are.
• The growing ecommerce has disrupted numerous business models; but this does not necessarily mean that there will be no more “offline” businesses in the future.

One should also not be blinded by the extremely good performance of some shares or funds. A return of 20 % says little if it is not put in relation to the underlying risk. Many investors focus on absolute rather than risk-adjusted returns. This is because high returns usually go hand in hand with higher risk. The “Sharpe ratio” can be used to make a correct assessment. The Sharpe ratio can help to put returns and risk into perspective.

For example, an equity fund that has achieved a 10 % return but has crashed by 20 % in the meantime would have a lower Sharpe ratio than a fund that has only achieved 8 % but has never been in the red. Many investors would ultimately feel more comfortable with the second fund, even though it had a 2% lower return. 

Mistake 5: Constant buying and selling

“Too much back and forth makes your pockets empty.” This old stock market piece of wisdom is still valid today.

Just like the costs of a financial product, trading costs can also significantly reduce the return. Because every purchase and sale on the stock exchange costs fees. Especially for small amounts, these fees have an extremely negative effect on the return and can even turn it completely negative.

Although investors can get the feeling that they are “taking care” of their portfolio by actively reacting to the current market situation, in the end they are usually harming themselves.

Too much buying and selling can also lead to greater nervousness. It tempts them to keep looking at their portfolio and reacting to supposedly threatening or lucrative situations. Not only does this incur high trading costs, but you may even miss out on important value gains by temporarily exiting the market.

This is why the best advice is to always stay calm, keep a cool head even when bad news arise and follow a (preferably fixed) investment strategy for the long term. There is power in calm, especially when it comes to investing.

The post 5 mistakes investors can avoid first appeared on Invesdor - Blog.

In the past, it was unusual for a listed company to be confronted by climate activists at a general meeting.

However, protests against companies’ eco-balance and sustainability criteria have long since ceased to be a rarity – and are no longer perceived as a negligible aberration of overzealous young people. Instead, companies’ interest in the responsible treatment of people and the environment has now reached the centre of the investment community. 

Fund managers now give just as much weight to the sustainability strategies of corporations in their valuations as individual activist shareholders. As a result, they are increasingly demanding a consistent orientation towards sustainability goals from management. 

Get to know the acronyms of impact investing

Acronyms and terms such as ESG criteria and SDG have entered the everyday language of professional investors. Impact investing, in particular, is becoming increasingly popular. But what exactly is it, and what does it mean for investors? 

Let us first look at the abbreviations. ESG stands for Environment, Social and Governance. ESG is a set of assessment measures that can be used by financiers, shareholders, governments and stakeholders to rank companies’ sustainability efforts. Unfortunately, there is no single, internationally recognised set of ESG criteria or benchmarks, so many different ideas exist. 

SDG is the abbreviation for the Sustainable Development Goals, referring to 17 global goals that 193 United Nations states agreed on in 2015 to use as a guideline for using financial resources for social and environmental purposes.

ESG and SDG thus provide the criteria that come into play in impact investing. However, impact investing goes one step further and includes “effective” investing in sustainability. 

Impact investing also means that the positive impact of an investment must be verifiable. For example, how much natural resources and energy have been saved, and how much CO₂ emissions have been reduced?

So it is not just a matter of avoiding investments in environmentally harmful businesses but of making the positive effect of an investment on a sustainable economy and a better environment tangible. The result is what matters. 

Maarten de Jong, the founder of the crowdfunding platform OnePlanetCrowd specialising in sustainability projects and now part of Invesdor, puts it in a nutshell: “Use your business as a source for good”. 

Decisive criteria for impact investing

Impact investing has been on the rise for several years. Only investing “sustainably” or “green” has proven to be too vague in the past, mainly since the criteria for such investments are not prescribed. This leads to a supposedly green fund investing in nuclear power plants because they save CO₂. Or that large oil companies are in the fund portfolio because they also promote solar power plants. Or car manufacturers who save energy in production but continue to stick to the combustion engine. 

Criteria for sustainable investments are open to debate, and their positions are sometimes far apart. The decisive question in impact investing is therefore what the investment has brought to the sustainability goal and how significant the contribution is. For many investors, returns are only worth something as long as the company or project positively affects the environment. “We believe that more and more people in Europe are increasingly interested in investments that offer them both a financial return and a sustainability return. We call it a double return,” Maarten de Jong sums it up. “I believe this movement will grow significantly in the coming years.”

The many opportunities for impact investing

The beauty of impact investing is that investors and savers have many different options for making an appropriate investment. 

• Eco-banks offer sustainable current accounts and sustainable overnight and fixed-term deposits. 
• Investment funds committed to impact investing: For example, microfinance funds grant microloans to people in the Third World so they can build up a livelihood. 
• Impact funds are usually equity funds that select stocks according to SDG or ESG criteria and then measure their impact.  
• Green or social bonds are bonds issued by states, countries, municipalities or banks and companies that serve to finance wind or solar park projects, for example. Germany is one of the largest markets for green bonds; there is even a separate trading segment for them on the Frankfurt Stock Exchange. 
• Impact investing also offers the opportunity to invest in sustainably oriented companies. Direct investments in corporate bonds and corporate investments via crowdfunding are particularly suitable for this purpose.

The risks of equity investments are often complex for investors to keep track of. This makes the information provided by the company, the project, the fund provider or the investment platform to investors all the more critical. 

Crowdfunding excellence in impact investing

Crowdfunding has also offered a platform for young companies focusing on sustainability for many years. 

Crowdfunding platforms such as Invesdor check the seriousness of business models and figures and analyse the competition, management and affected markets. Then, only investment possibilities meeting the criteria are offered to the “crowd”. 

“In the last five years, crowdfunding has become a professional investment opportunity,” emphasises Niklas Green, Project Manager at Invesdor Nordics. “Before, it was something that investors did for fun and to support companies. Now, retail investors invest in companies that have good prospects and high return potential.”

Meanwhile, the “impact” of investments is increasingly receiving additional tailwinds from political decision-makers. OnePlanetCrowd founder Maarten de Jong illustrates this with his home country: “For projects such as solar panel fields or wind turbine parks, the regional authorities in the Netherlands require that a certain percentage of the capital must be investable by local residents so that the local community also benefits from the projects. Together with the project managers, we then organise a funding campaign in the region intending to increase the acceptance of the projects via citizen participation.” 

In this way, crowdfunding with the support of politics, becomes the ideal platform for impact investing.

Maarten de Jong also has an excellent example of an ideal impact investment in Fairphone: “This is an Android smartphone made with metals and minerals from sustainable supply chains that can be repaired and upgraded by the owner to avoid premature replacement. The project has huge sustainability potential.” 

OnePlanetCrowd funded Fairphone with €2.5 million in 2018. 

“Crowdinvestors were among the core investors at the time and have been instrumental in making the company profitable today. Now the crowdinvestors can sell their shares in a new financing round with a good return. This is a nice success story,” Maarten de Jong continues.

Apart from returns and responsibility, there is another good argument for investors in impact investing via a crowdfunding platform like Invesdor: They can participate in sustainable projects even with small amounts. 

“In my view, crowdfunding offers private investors the only opportunity to invest in growth companies that were previously only accessible to professional investors,” emphasises Niklas Green. 

With crowdfunding, the minimum investment is usually between 250 and 500 euros. This makes it possible to invest in growth companies with a much smaller portfolio and to diversify one’s portfolio more.

“This makes it easier for investors to spread their commitment, return opportunities, and investment risks across many companies with a sustainability focus. And – as Maarten de Jong puts it – “to use business as a source of good”.

The post Double the return through impact investing first appeared on Invesdor - Blog.

When it comes to investing in a strong project, the options can seem overwhelming. Making a well-informed decision requires a level of expertise, which is where our team steps in. Our Investment Committee conducts thorough evaluations, while the Campaign Team distills the key information. You can easily access these insights on the project pages of the respective companies.

Ultimately, it’s you who decides. Only you know: With what kind of goal in mind do I invest? Am I convinced by the strategy? How do I feel about the company’s vision? After all, rational considerations play just as much a role in the decision process as gut feeling. So don’t be afraid to make your own judgment.

1. Decide how you want to receive the return on your project investment

The general question to clarify is the type of investment. There are two options here: With equity investments you secure chances for a higher return, but at the same time the risk of the investment grows. Another option are fixed-interest investments. They also count as risk investments, but you receive regular interest payments for your invested money in a predefined amount.

With your investment, you are not only securing returns or interest, but above all you are investing in a project. If the project of the company of your choice becomes a success, you will also profit from it. So clarify from the outset: What does the company actually intend to do with my money and do I think its plans are realistic?

2. Find out the reasoning for financing

For a first impression, we attach a short video to most of the products on our platform. Here you can first dive in emotionally. Find out whether you find the company likeable, whether the product attracts your interest and whether you feel like supporting the realization of the idea presented.

Each executive should also be able to tell you in a few words what he plans to do with the money he asks you to invest. A snappy quote at the top of the project page gets to the heart of the funding reason. In case you are already convinced, now it’s time for some numbers. – Don’t worry: You don’t have to go through pages and pages of balance sheets, business plans and market forecasts – we’ve already done that for you. Without our Investment Committee’s critical pre-selection, no project makes it onto our platform.

3. Take your time to understand the business model

It’s a well-known fact that you can talk a lot and plan a lot, but in the end it’s actions that count. Numbers tell us a lot about what exactly a company does to earn its money, how the company and its market environment have developed in recent years, and what is to be expected from the future. It is important to understand both the company’s business model and the associated market. The focus, of course, is on the product or offering that will be realized thanks to your investment: What exactly is being offered? Is there a demand for this offering? How strong is the competition?

And then there is the financial planning. An idea can be very exciting – but only with a realistic planning of expenses, income and reserves, the idea becomes a product. A realistic financial plan for the company is a prerequisite for receiving back your money, including interest or returns, at the agreed time.

4. Dig deeper into your preferred project investment structure

Are you completely convinced by a product? Let’s get down to business! Now that you know all the important facts about the company and its product, you can decide whether the specific investment offer is something for you or not.

For fixed-income investments, check out the following factors: Do the interest rate and payment rhythm fit my portfolio planning? What happens to my money in the event of a financial bottleneck of the company (subordinated or non-subordinated loan)? Will I receive the interest payments by bank transfer or as interest in kind, i.e. usually in the form of vouchers?

There is a different logic to investing in shares. Investing in growth companies should be judged on how you see the company doing in the long run. Many growth companies do not pay dividends, but say they will invest in growth in the next few years. Then it is worth paying attention to the development of the company’s value and exit strategy, i.e. the possibility to sell shares at a profit in the future.

Anyone opting for a product with participation or profit-sharing rights should check out the following factors: How big is the amount of the basic interest rate? How does the exact structure of the participation work?

5. Diversify, diversify, diversify

With regard to one’s own portfolio structure, the magic word is diversification. If you invest exclusively in products from the same sector, you may incur losses in the event of sector-specific problems.

On the other hand, those who diversify increase their chances that a weak performance in one sector will be offset by a better performance in another.

6. Check the project page and other documents regularly for updates

The project pages of the companies provide information about the most important aspects you need to know in order to evaluate a company. You can find more important information in the linked documents, so you should also pay attention to them.

There you will find, for example, detailed information on investment risks. In addition, it is worth taking a regular look at the project page: As a crowdinvesting platform, we regularly receive important information and exciting input from our investors.

Inquiries from our investors are answered quickly by us and the companies. Updates are posted on the official project page, additionally we will inform our investors by email.

Read also:
Learn all about how we select your investment opportunities
Fixed interest or equity investments – which type of return are you aiming for?

The post A step-by-step beginner’s guide to investing in the right project first appeared on Invesdor - Blog.

Inflation is at a record high – How to protect your money

One indicator of the general price increase is the inflation rate, which climbed to a new record high in Finland in April and reached 5.8 percent. In concrete terms, this means that the price for the same good has increased by 5.8 percent compared to the respective month of the previous year.

In the euro area, it’s as high as 7.4 percent and expected to rise above 8 percent in May. In Germany inflation reached an all time high in May and now stands at 7.9 percent. To put this into perspective: inflation in Finland and Germany cannot yet be classified as hyperinflation – hyperinflation is only reached when inflation rates are around 50 percent.

Healthy or dangerous inflation?

Economists consider inflation of two percent to be healthy, however, we are currently a long way from that. But in some industries we are already approaching this critical level: In April, the increase in the price of heating oil and other fuels compared to the same month last year was 48.4 percent in Germany.

What is the cause of the price increases?

One reason for the sometimes dramatic price increases is the war in the Ukraine which has served as a catalyst for increasing inflation rates since its start. In addition to this interrupted supply chains caused by the COVID-19 pandemic and the significant price increases at the upstream economic levels are resulting in supply-chain bottlenecks. As these major events continue to play out, energy products and other goods such as food have become increasingly expensive.

But what is inflation actually?

Inflation describes the gradual decrease in the value of money. It often determines profit or loss, especially in times of low interest rates. Although there are currently indications that the world’s most important central banks are moving away from a negative or zero interest rate policy, investors will still have to wait a while before interest rates return to pre-financial crisis levels. Therefore, they should keep an eye on inflation and protect themselves accordingly.

We will now show you the forms, causes and effects of inflation and how to effectively hedge your capital against it. Don’t let yourself be horribly dispossessed. Learn the appropriate ways to protect your capital now. 

The supposedly simple defence against inflation

The stock market offers direct protection against inflation: Inflation-linked bonds. These bonds are linked to the inflation rate. If the inflation rate rises, so does the interest rate. The reverse is also true.

However, these bonds are not necessarily suitable for newcomers to the stock market. There is often a lack of transparency and hidden costs associated with this form of investment.

To really hedge against inflation, value your money:

Inflation protection – the 4 ways to protect

1. Invest money profitably, protect and diversify capital

You can only achieve real protection against inflation by investing your money profitably. This is the best way to counteract inflation. The beauty is that this will not only protect you from inflation, but simultaneously increase your capital.

The following asset classes are subject to fluctuations in value – but in the long term the trend is upwards. Inflation is also helpful, even if it is only moderate.

Attention: Please note that higher yields are associated with higher risk. With higher yields you can counteract the inflation rate, but of course higher interest investment forms include new risks.

Be as diversified as possible

The importance of diversifying your investments cannot be emphasised enough: If you want to protect your money, you should diversify your capital, i.e. spread it over many investments and investment categories, in order to avoid cluster risks. Diversification is a risk management strategy in which you invest in a variety of different assets, which can reduce the risk of major losses for you in the event of increased market volatility.

You can achieve diversification through various forms of capital, for example debt and equity. At Invesdor, you will find both options. Among other things, we offer subordinated loans as a form of debt capital, while shares or similar investments give you the opportunity to become involved through equity capital.

Another approach to investing as diversely as possible is to spread your investments across different markets, thus avoiding cluster risk as you are not limiting your investments to one country. At Invesdor, we offer you investment opportunities with strong companies from many European countries – combining support for the European economy with sensible risk management.

Last but not least, you should also diversify across different categories of companies, from up-and-coming young companies to established traditional medium-sized companies, always weighted according to your personal risk profile, of course. At Invesdor, we offer you all this – the choice is yours.

2. Shares to protect against inflation

Like real estate or precious metals, shares are tangible assets. This is because behind the shares are companies with associated real assets such as factory buildings, machines and personnel.

They serve as relatively good protection against inflation because usually prices go up when the money supply goes up. As always with shares, it depends on which shares you own. If companies manage to pass on the cost increases caused by inflation, then you as a shareholder benefit from inflation.

However, the prerequisite for this is that the real wages of the customers keep up. If the purchasing power of a company’s customers declines, prices cannot be passed on to them. The customers can no longer afford the company’s products or services.

Here it is always a question of the right measure. Studies show that shares perform best up to an inflation rate of five percent. Higher inflation rates, on the other hand, cause serious problems. However, when this is the case it usually affects the entire economy including other asset classes.

Therefore, shares are suitable protections against inflation when experiencing a moderate to increased inflation rate of up to five percent. Beyond that, many unpredictable risk factors come into play. Of course, this relies on having the right shares. Even without strong inflation, even in a functioning economy, a company can go bankrupt.

In the long term, a share investment should beat an inflation rate of two percent. So far, the DAX, the largest German share index, has generated an average plus of eight percent per year. Your real return would therefore be plus six percent per year and thus far above inflation.

Profits of individual companies also suffer from rising inflation. In the past, we were able to observe that the majority of companies were able to pass on rising prices to consumers. In this way, companies were at least able to keep profits stable. For this reason, it makes sense to invest in as broadly diversified equities as possible. For example, via low-cost exchange traded funds (ETFs / index funds).

Conclusion on shares to protect against inflation

In the long term, a broadly diversified equity portfolio has always offered very good protection against inflation in the past. When inflation is moderately elevated, equities offer a good environment for price gains. However, if the inflation rate rises rapidly, share prices can temporarily suffer more from the negative macroeconomic effects.

3. real estate as inflation protection

“What could be safer than an investment in concrete and steel?” What sounds plausible at first glance often turns out to be a misconception.

A property works well as a protection against inflation if you, as the buyer, pass on the higher costs to the tenants. Because as inflation rises, the running costs for maintaining the property also rise. Financing costs can also increase if you do not have a fixed-rate agreement with the bank or if it expires. If rents do not increase in proportion to costs, you as a landlord make a loss. Strong and rapid rent increases are usually difficult to enforce against tenants. During a period of strong inflation or even hyperinflation this immediately becomes a large problem.

However, the property is quite good protection if you sell it during a period of high inflation rates. As inflation rises, so do property prices, so you may be able to sell your property for a much higher price than you originally paid. To do this, of course, you need a buyer who is willing to pay the higher price. But beware of property bubbles!

If you do not have sufficient capital to purchase your own property, you can also participate in real estate funds. This way, participation in the real estate industry is possible even with small amounts.

Also beware of the state: Theoretically, it can impose special taxes and forced mortgages at any time. In 1948, this was done during the currency reform.

Conclusion on real estate to protect assets from inflation

As a tangible assets, real estate is also suitable as a long-term protection against inflation. But beware: If the financing and management costs increase more than the current income due to inflation, a deficit can arise.

4. infrastructure funds to protect against inflation

The expansion of infrastructure will remain an important topic in entire the world for a long time to come. In addition to bridges, motorways and airports, there have recently been investments in communication networks and renewable energies. In addition to individual investments, funds are increasingly being offered that bundle various infrastructure projects. An investment in infrastructure funds can therefore be worthwhile, especially because most offer an above-average return. The demand is enormous and will continue to grow.

Infrastructure funds offer comparatively high stability and predictability. The companies in which the funds are invested are often “quasi-monopolists”. They are secured by long-term contracts and are less dependent on economic cycles. Therefore, infrastructure funds are well suited as a supplement to inflation protection.

Conclusion on inflation protection with infrastructure funds

These funds are characterised by consistently high demand and predictability. As tangible assets, they are an interesting form of investment for inflation protection, as rising operating and maintenance costs can usually be passed on well to consumers. However, often they are not readily available private investors as an investment.

These investments are only suitable under certain conditions

1. Gold – the crisis protection classic

Unlike paper money, gold cannot be multiplied indefinitely. That is why it enjoys a good reputation as a “crisis currency”. Gold is also independent of states or central banks.
Furthermore, gold is one of the oldest means of payment in the world and transcends cultures. Even the Romans paid with gold coins.

However, the value of gold always depends heavily on the market price. There is no guarantee of rising gold prices with rising inflation. Gold is not that dissimilar to paper money and cryptocurrencies like Bitcoin, Ether & Co. In the end, it is only worth as much as people believe in it. You can’t eat it or directly produce anything with it, nor can you live in it.

Gold’s status as inflation protection is controversial

The past has shown: The inflation rate and the gold price do not necessarily behave as one would expect. Examples are the years 1980 and 1981, when inflation was very high but the gold price did not rise. On the other hand, the gold rally between 2001 and 2005 cannot be explained either. Inflation was on the decline at that time.

Finance professor Andrew Ang from Columbia Business School empirically proves in his article “Real Assets” (2012) that gold is not a good inflation hedge. According to his research, the gold price developed at a much weaker rate than inflation over long periods between 1875 and 1970.

This shows that inflation is not the sole cause of increased demand for gold. Rather, it is the fear of instability in the monetary system. Fear causes the demand for gold to rise. And this instability can be triggered by high inflation. A disadvantage of gold is also that it does not yield interest or dividends. Additionally, the past has shown that with gold, the entry point is extremely important but difficult to find. If you enter at the wrong time, you often have to wait a very long time before you even get your investment back. Other precious metals such as silver or platinum are always alternatives to gold.

Also consider the storage costs for gold, especially for larger quantities. Gold must be safely stored and protected. Both from burglars and from damage. Safe depositories and protection regularly cost money. Due to inflation, the costs for these services are also rising.

Experts recommend investing five to ten percent of the portfolio in gold or other precious metals as an emergency reserve in the event of a crisis. Investors should always see their gold investment as a long-term investment and crisis currency in the event of price fluctuations.

Conclusion on inflation protection with gold

In the case of a crisis gold is a protection which has withstood the test of time. In particular, concerns regarding the stability of the (paper) monetary system regularly increase the demand and thus the price of gold. The sometimes high fluctuations of the market price, the lack of dividends and the storage costs are problematic.

2. Corporate bonds

Corporate bonds offer an alternative to shares. Many companies can no longer and no longer want to rely solely on banks for their financing. They are looking for additional sources of financing through the stock market. Through a bond, you provide the companies with the financing they need and earn interest at the same time.

With corporate bonds, the creditworthiness of the company plays a crucial role: You should know the answer to the question of how good the company’s future solvency is. Because the company can only service the interest and redemption payments due with a good credit rating. Simply put, the higher the risk, the higher the interest rate. In most cases, large corporations’ bonds offer lower interest rates than medium-sized companies’ bonds, but their creditworthiness is often higher.

Conclusion on corporate bonds

If the interest rate on corporate bonds is above the inflation rate, this offers protection against the loss of purchasing power due to inflation. However, bond prices usually fall when inflation rises. As a protection against inflation, they are therefore only suitable to a limited extent.

3. Crowdlending & crowdinvesting

Crowdlending makes it possible to invest in loan projects of (mostly smaller) companies. In return, investors receive regular interest and redemption payments. Crowdlending at Invesdor offers an average interest rate of over five percent per year.

It is important that the borrowing companies meet their payment obligations to the investors. If this works, you should easily beat inflation with crowdlending. The risk here lies in stronger rising inflation. Compared to the default risk, the investor is now only rewarded with a comparatively low interest rate.

A special feature of crowdlending is that you receive interest and principal payments at regular intervals. This allows you to divert some capital from crowdlending into other asset classes if necessary. It thus offers a bit more flexibility than corporate bonds or shares, which can only be liquidated at a loss if necessary.

Crowdinvesting can also be a way to protect against inflation. Here you invest in companies for the long term. The opportunity here is high returns in the event of success, which far exceed the usual interest rates for loans.

Conclusion on crowdlending & investing

Crowdlending and crowdinvesting offer above-average interest rates. Especially in the current low-interest environment, this offers an interesting alternative. In terms of risk profile, they are similar to shares and corporate bonds. However, in the event of extremely high inflation, even these forms of investment will no longer serve as sufficient protection against it.

Checklist Inflation Protection

You may have noticed: The practical implementation of inflation protection is difficult in low-interest phases. That is why we have drawn up a list of notes for you to use as a guide.

1. Always factor in the rate of inflation when calculating your investment return.
2. To compensate for inflation, your investments should yield at least two percent. The difference between the interest / return and the inflation rate is your effective, real return.
3. Invest in asset classes such as equities and real estate, and in some cases corporate bonds, as well as crowdlending and crowdinvesting, which have higher interest rates than the rate of inflation.
4. Gold should be a supplement, but it is primarily a crisis currency rather than a protection against inflation. Gold is only valuable because it is rare. With mass sales, the price will fall quickly.
5. In times of low interest rates, avoid investment classes such as call money, fixed-term deposits and savings books. They are safe, but unprofitable. Interest rates are so low that inflation devalues your savings day by day. You will lose money.
6. You should only invest in alternative tangible assets such as jewellery, art, wine or classic cars if you yourself are undoubtedly an expert in these areas or if an expert will do it in your name. If not, enjoy them – but do not consider them as an investment.

Inflation is a constant companion of our monetary system. Don’t be intimidated by it, but always remember the real loss of value. In the current low-interest phase, you as an investor must behave proactively to protect yourself from inflation.

Read also:
What to look for when investing sustainably
Step by step guide to the right investment: How to choose the projects that suite you best
Our favourites: Some of our most successful funding rounds

The post 4 steps to protect yourself from inflation: How to invest properly first appeared on Invesdor - Blog.

This is not to say that participating in IPOs would be unprofitable – historically they have, in fact, been very profitable – but that retail investors usually only get a fraction of the shares they want. This is due to tactics utilized by the investment banks advising companies on going public. It pays off to keep the public hungry.

Our view is that if you are an investor looking for high-growth investments, you are not likely to get the best deals by always waiting for the IPO. The examples presented herein are from the Finnish market, and there may be some differences across markets.

Looking for the Balanced Investment Portfolio

The premise is that we are searching for a ‘balanced investment portfolio’. Wisdom has it that an investor should diversify their investment collection, also called the investment portfolio. This is because the values of securities go up and down, and in a diverse enough portfolio one investment will generally be up when another is down.

A diverse portfolio should have both defensive and aggressive investments. The latter are what shares of most growth companies, i.e. ones that are growing rapidly but may not yet be profitable, would be classified as. Growth investments can yield the biggest returns, but on the flipside also have the biggest risks. In many cases, a well-placed growth investment can have a disproportionately large effect on the return of a portfolio.

Often when a company does an IPO and lists on a stock exchange, it is already a well-established player in its domain and is likely to have considerable backing from professional private equity investors. At this point, much of the value has already been created and professional investment funds have the company in their grasps.

Unfortunately for the retail investor, what’s left for them is just crumbs.

The Thrilling, Frustrating IPO

An important reason that companies choose to list on stock exchanges is the visibility, brand awareness and credibility they generate in the process. There is a great deal on the line when a company chooses to do an IPO, especially image-wise. So what investment bankers and other IPO advisors generally advise are tactics that result in the share price jumping higher in the first days of trading, because it sends a strong message to the public. One of these tactics is to aim for an oversubscription.

An oversubscription is a situation in which demand exceeds supply, i.e. the total number of share subscriptions received exceeds the maximum number of shares on offer. It sends a strong message to the market. One way of accomplishing an oversubscription is to divide the shares being issued into so called tranches; for example, one for institutional investors (such as pension funds) and one for the public (retail investors, i.e. common people and companies investing for themselves).

The problem for the retail investor is that the tranches are almost never of equal sizes: according to a study done for the Finnish Foundation for Share Promotion, on average 90% of the shares are allocated to institutional investors and only 10% to the public. Since the institutional investments are mostly agreed on behind closed doors, the public has to make do with what they are given.

This results in IPOs where a retail investor might subscribe for shares, for example, with €3,000 but be allocated shares just for €300.

Ironically, it is better for companies to keep the public hungry as it supports their shares’ price development. Unfortunately, this can leave the retail investor disappointed because the companies won’t take the money, the investor receives less shares and finds it very difficult to make IPO investments that would provide a considerable absolute return.

The Solution? Diversify and Invest Before the IPO

An obvious factor that makes pre-IPO shares attractive is their potential to bring high profits. For example, The Finnish Pension Alliance TELA looked at the profits over various periods from the last years from different investments by Finnish employment pension companies. Unlisted shares yielded higher profits than the listed shares.

However, it’s important to bear some things in mind. First: these are professional investments with a great deal of expertise and analytical thought used to weigh their pros and cons. They shouldn’t be considered typical results – more of a demonstration that when successful, an unlisted share can clearly outperform a listed one. 

Second: many early stage startups will end up failing completely or at least operating at a loss. While a 2017 study by the Finnish Business Angel Network (FiBAN) that covered 126 exits by 40 angel investors found that the exits had an impressive average profit multiplier of 3.75, it also showed that more than half (54%) of the exits made losses.

In a 2017 survey of 1,659 angel investors in the US, it appeared that the investments yielding positive results were just 11% of the investors’ portfolios. Reaching the exit stage can also take a great deal of patience: according to FiBAN, the average time for the company to develop and reach an opportunity to sell your shares is eight years.

What these results show us is that there may be opportunities for high profits in unlisted companies, but also high risks of losing all the invested capital. This makes diversification key: with a diverse portfolio with carefully considered defensive and aggressive investments, it is more likely that the well-performing stocks will balance out the poorly faring ones at any given time.

Nowadays being a mini-angel is simple as you do not need extensive contacts or a huge investment wallet to get started. On Invesdor’s platform there is no strict minimum investment, only what the target companies set – the average minimum is around €500.

So it’s worth considering unlisted shares and making some room for them in your portfolio. Just remember: diversify, diversify, diversify.

The post Why you should make growth investments before the IPO first appeared on Invesdor - Blog.