20 September 2016Product & Services

Investing 101 – The Basics of Investing

We launched N26 Invest to offer an investment product that’s easy to use and is accessible for all of us, not just financial experts. N26 Invest is the perfect tool to gain insights into the basics of investing. Now let’s go over some fundamentals and explain how it all works in more detail. What does it even mean to “invest” anyway? In this context, investing is just another way of saying you’re committing your money to a financial asset with the intention that the amount becomes more than what you started with. It’s important to bear in mind that your investment decision is subject to risk and that an increase in value is possible, but not guaranteed. What’s a financial asset? The most common financial assets besides bank deposits are stocks and bonds. For most intents and purposes, a stock is a unit of ownership of a publicly traded company and its earnings, and the market wherein stocks are bought and sold is called an equity market. A bond is a loan that you’re giving to a company (corporate bonds) or a government (government bonds). They have to pay back the amount borrowed (the principal) along with an additional interest amount (the coupon). The market wherein bonds are traded is called a fixed income market or bond market. What are my investing options with N26 Invest? N26 Invest offers three plans that allow you to invest in both of these markets with a blend of stocks and bonds.

  1. Invest 40 is comprised of 40% equities and 60% bonds.
  2. Invest 60 is comprised of 60% equities and 40% bonds.
  3. Invest 80 is comprised of 80% equities and 20% bonds.

The money is invested into stocks and bonds. The equity funds invest your money in companies from industrialized countries and from emerging markets. Equities are usually “riskier” assets, as they have a greater likelihood of fluctuation, which means potentially higher returns but also losses. Bond funds invest your money in government and corporate bonds from industrialized countries. Bonds are usually “safer” assets, as they have a lower likelihood of fluctuation. Why does the value of my plan fluctuate at all? In short, the value of your plan is linked to the value of the assets and the stream of cash flows of the companies in which you have indirectly invested. Moreover, the value of the investment plan depends on the dividends from the stocks you own and coupons from the bonds you own. A dividend is a portion of the earnings of the companies you’re invested in, but the tricky part is you don’t get it automatically; it has to be approved each year by all the shareholders. A coupon is the interest amount you get on the bonds you own; you have a much higher certainty to receive it. When investing, you have to be aware that your investment decision is subject to different types of risk. For example, the risk that is linked to the company you’re committing money to, that is to say the risk that the company doesn’t perform well due to its products or its strategy. Another example is the risk that is linked to the financial markets and the state of the economy overall. As mentioned above, the assets comprisingN26 Invest plans are diversified across many countries and companies. It helps mitigate the fluctuation in the value of your portfolio by controlling the impact of the risks coming from the company you invested in. But unfortunately, you will still be subject to financial market risks.  That’s why some fluctuation in the value of your portfolio is normal. What are the expected returns for N26 Invest plans? The first thing to be aware of is that past performances are not reliable indicators of future performance. It is not possible to give you a precise guidance in terms of expected returns. It’s important to keep in mind though that as a long-term investor, you shouldn’t focus too much on fluctuations in the value of your portfolio that happen on a daily basis due to market movements. What matters most is the overall return that your portfolio may generate over the time of your commitment. There’s a whole world of information about investing and financial markets, but we hope this helps make things a bit more transparent so you have a better understanding of N26 Invest. Disclaimer: N26 Invest is an investment product with the risk of capital loss, including initial principal. This means that your invested capital might not always be available in its entirety due to fluctuations on the capital markets as well as the fees connected to this product. Bear this in mind when you choose your portfolio strategy and the amount you want to invest. N26 Bank GmbH is merely acting as an investment intermediary and does not execute an assessment of suitability and appropriateness with regard to a user's investment decision.

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