If you want to invest money, you can choose from a whole range of asset classes. Here we consider the asset classes fixed money, real estate, securities, corporate investments or co-entrepreneurships and cryptocurrencies. In a comparison, we analyze the criteria of return, risk and taxes. Above all, the asset classes cryptocurrencies and fixed deposits stand out. While cryptocurrencies combine the highest return and the possibility of tax-free receipt at a moderate risk, despite low risk, the fixed deposit is the least profitable asset class, because here a low interest rate meets a high inflation rate. In addition, the interest on the fixed deposit must also be taxed with 25 % capital gains tax. In addition, only EUR 801 is available as a saver lump sum per person; the application of actual advertising costs is excluded.

1st asset classes and their meaning – Introduction

Who wants to invest money, is faced with the question of where to invest it. There are possibilities, such as sand on the sea. But just as numerous as the possibilities are also their qualities. So it stands to reason that you deal with the characteristics before you decide. After all, one wants to ensure that the money increases as successfully as possible. However, in order to estimate this, one must also know the opportunities and risks that can occur due to the individual characteristics. But these characteristics also include the return prospects and the taxes you have to pay on the hoped-for income.

In this respect, investment objects can be divided into different classes, which are also called asset or asset classes. What effects asset classes have on returns, but especially on taxes, we want to show in a comparison. But we are also interested in which of the asset classes currently turn out to be particularly rewarding.

What asset classes are there?

To do this, we first need to define which asset classes exist. Here you can differentiate in very different ways. On the one hand, classification according to the degree of risk of loss is a conceivable approach. On the other hand, a very practical approach can also be used as a benchmark. So do we.

Because for our comparison we take very specific asset classes, as they meet us in our everyday practice as a tax consultancy. To do this, we distinguish between the asset classes fixed money, which you let work in the bank account for interest, securities, in particular stocks, real estate, company shares or co-entrepreneurships and cryptocurrencies.

What impact do asset classes have on returns?

With which we have already arrived at our first comparison, namely the one that focuses on the return. For this purpose, we discuss each of the previously defined asset classes separately. An average annual return is important for our comparisons. Of course, we are aware that this can be accompanied by significant deviations when considering other investment periods.

3.1. Return on asset class fixed money

So the first asset class we look at is to shed light on what return you can expect if you simply deposit the money you are investing in a bank account and then wait for interest to be paid. Shortly before the publication of this article, interest rates in Germany were also subject to the loose interest rate policy of the European Central Bank (ECB). Interest rates were so low that some risked losing money because interest rates were below zero – regardless of the dangers of losing purchasing power due to inflation. But due to the recent sharp rise in inflation, the ECB has now decided to raise interest rates significantly. The euro's interest rate is currently 0.5%.

Nevertheless, interest rates still remain at a level that makes saving money via a banana account seem low-yielding. Although the risk of default in the narrower sense is extremely low for this asset class, this only applies if the consequences of inflation are excluded. But investing also means placing a bet on the future. Perhaps more interest rate hikes by the ECB will follow, which increases the attractiveness of this asset class over others. The fact that further interest rate hikes are quite likely is also due to the fact that high interest rates are an effective means of combating inflation.

3.2. Return on the asset class of securities

With increasing risk, one should also expect a higher return. This is also the case when you want to invest in securities. Because this asset class is, due to the sometimes hardly predictable price fluctuations on the stock exchanges, also affected by possible losses. The risks in the asset class of the securities are related to a barely overlooked number of factors. Just the question of which securities to invest in can have an enormous effect on risk. Because some securities are significantly lower risk than others. Therefore, when determining what return to classify investments in the asset class of securities, be careful. However, in order to create a comparison basis for our article, we assume a good average value of 3%.

Since we are focusing on price gains here, the returns that listed companies pay out as dividends remain out of consideration. This also has the practical background that one is dependent on significantly more factors in order to determine the return. For our comparisons, we take only growth stocks as a benchmark.

3.3 Return on the asset class of real estate

A less risky asset class is real estate. This is because you are subject to a generally only slowly changing market. There are also other risks that threaten a property, as one year ago, for example, the great storm in North Rhine-Westphalia and Rhineland-Palatinate brought to our attention. The annually growing number of forest fires can also be identified as a risk. But even if one perceives the causes of this as a constantly increasing threat, such risks are rather low compared to the risks of other asset classes. Nevertheless, we want to achieve a return that is currently expected to average around 3%. With rising interest rates, however, yields of 5% could soon be possible. But this is now less likely because real estate prices have generally stagnated for a year, even though they had risen steadily before.

Here, too, we focus on the return that can be achieved through the sales proceeds. Although one can also realize return by renting or leasing real estate, this depends strongly on the type of property. Since real estate is very different and the situation alone can lead to significant deviations in the determination of the return, we want to focus our remarks on this type of return. But even taking into account potential rental income, the return on the asset class of real estate is unlikely to be significantly higher than the previously mentioned 3 %.

3.4 Return on the asset class of shareholdings/co-entrepreneurships

Entrepreneurs or investors who invest their money in operating companies take a significantly higher risk. Unlike the large DAX corporations, whose shares can be bought on the stock exchange and who bear a rather low risk (we want to consider Wirecard AG as an exception), there are a number of risks lurking in smaller or medium-sized companies. For example, the willingness of potential lenders to lend to such companies is relatively more restrictive. The risk of default by defaulting customers can also be important here. Therefore, if you invest money in this asset class, you also want to achieve a potentially higher return. Returns in the order of 10% are realistic here. At least one expects a factor of 13.75 when valuing companies in the valuation law, if one wants to conclude from the annual profit on the company value.

3.5. return on the asset class of cryptocurrencies

Since there is a whole series of cryptocurrencies in addition to Bitcoins and they have very different returns, a general statement on the level of return in this asset class is only of low information content. However, it can be agreed that returns in this asset class are generally well above those of everyone else. However, it has turned out for this still quite young asset class that the volatility can also be quite high. Therefore, we assume here a conservative estimate of the return of 100%. Considering Bitcoin’s average annual return over the past decade, which is at 230%, it should be clear that this is quite a realistic estimate, especially to make a comparison to other asset classes.

4. What impact do asset classes have on taxes?

Next, we go into taxation. So we want to know how much tax we have to pay on the yield to be achieved. Again, consideration of the time period is important. Some returns are achieved annually, others only after many years. In order to still be able to compare the taxes payable, we consider the most tax-wise approaches with each other, within the shortest period of time that can be used. If you wish, you can then convert the taxes, which are incurred only after several assessment periods, to the individual years in order to obtain an average tax as a benchmark.

4.1. Taxes on the asset class of fixed-term deposits

We find the simplest form of taxation in connection with the asset class of fixed deposits. Here the tax deduction takes place at the source. This means that the banks deduct the capital gains tax of 25 % directly from the interest earned and pay it to the tax authorities. So we hold on to the fact that every year 25% of taxes are incurred on this asset class.

We do not want to consider the general tax deduction fee of EUR 801 per taxpayer per year, nor the solidarity surcharge or the potential church tax. This also applies to all other asset classes for which we have to tax by capital gains tax.

4.2. Taxes on the asset class of securities

In the return we want to look at in the asset class of securities, we examine, as previously stated, only those from the price gain. If you set the shortest period for this, then the holding period is only one year far from reality. In any case, the period should be used for our comparison.

The taxation of the return on the sale of securities also takes place under the capital gains tax. Because the rules governing the taxation of securities are essentially the same as those applying to fixed-term interest on deposits, 25% of taxes apply here as well.

4.3. Taxes on property asset class

In the case of real estate, we also look solely at the return on resale; Returns due to a rental are therefore not considered for our purposes. For this purpose, we want to assume that we keep the high-yielding property in private assets. For real estate as part of a business or corporate asset, other rules apply, but we want to simplify them at this point.

A speculative period of ten years applies to the sale of real estate. Although you can shorten this to about three years if you live in the property itself, this is rather excluded when considered as an asset class. Thus, we now sell the property after ten years of holding. Since the speculative period expired at this time, there is no tax on the profit made. However, one should fairly note that when buying the property, depending on the federal state, 6.5% of real estate acquisition tax is incurred. In addition, the continuously occurring property tax also plays a role here, albeit a comparatively small one.

4.4. Taxes on the asset class of shareholdings/partnerships

When taxing a company’s shareholding in a corporation, there are other tax rules, such as co-entrepreneurship or a sole proprietorship. That is the distinction that we are now discussing.

In the case of a shareholding in a corporation, such as a GmbH, which generates profits as an operating company, taxation first takes place at the company level. This involves 15 % corporate tax. In addition, there is the trade tax, in which the amount depends on the lifting rate of the respective lifting municipality. Let us just assume that this is also 15%, which is a good average. In sum, the company thus pays about 30% of the profit as taxes. In addition, the dividend to the shareholders is also subject to taxation. Here again the capital gains tax is decisive. In this case too, it covers 25 % of the company’s approximately 70 % net profit. So if you subtract that 25 %, after full taxation, about 50 % comes to shareholders.

The taxation of companies in this asset class is quite different in principle, but we come to similar results. The fact that partnerships can now also opt for corporate tax does not make a significant difference, at least not one that relates to the percentage of the net profit distribution to the shareholders. In the case of individual entrepreneurs, this is in any case only possible on the basis of the taxation of business income. However, the amount of income tax depends essentially on the amount of income. Because then you measure the personal tax rate. For high incomes, the top tax rate is around 45%. In addition, there may be trade tax. Although you can count a part of the trade tax up to a maximum of the actually incurred amount in the income tax. However, in most cases there is probably still a comparatively small trade tax overhang. So we can summarize simplifying that even in this mixed asset class, taxes are about 50%.

4.5. Taxes on the asset class of cryptocurrencies

Cryptocurrencies are special as an asset class. The mere fact that cryptocurrencies have only been used as an investment object for about ten years illustrates this. But also with regard to the taxation of profits, there are some special features that must be considered here.

First of all, you have to classify the profits you can earn in connection with this asset class. Only some time ago, the Federal Ministry of Finance established guidelines; We have already reported on the content of the BMF letter in this regard. This is how profits from the sale of cryptocurrencies are classified as other income. After all, cryptocurrencies within the meaning of the Income Tax Act are other assets. Such other assets can be sold tax-free after one year. However, if cryptocurrencies are also used to generate other income, for example through lending, the speculative period is extended from one to ten years.

Since we want to focus on the most advantageous option for each tax, we should therefore consider the sale of this asset class after a holding period of one year without generating additional income as a basis for comparison.

Conclusion: which asset classes have the highest potential?

5.1 General considerations on asset classes

To simplify our final conclusion, here we dispense with the effects that are generally tried to achieve through diversification. So we only compare what we found in the last and penultimate chapters. What we also do not refer to here are the indirect, possibly also rather long-term tax consequences of investments in the asset classes considered here.

For example, the pricing of increased taxes in the energy supply, especially through fossil fuels, is hardly realistically predictable in this context. This is also partly important at global level. This affects almost all asset classes, but especially the cryptocurrencies, which require very high energy consumption. If you note that a large part of the energy required to generate new cryptocurrencies currently comes from coal-fired power and if you look carefully into the future, then you should assume that you will soon either switch to other energy sources or have to expect higher taxes when using these energy sources. Indeed, such a shift towards climate-friendly energy sources is currently taking place. However, coal as an energy source on a global scale still has an enormous importance in terms of mining.

5.2 Asset classes that are worthwhile – the direct comparison

5.2.1. Investment in cryptocurrencies

So if we compare the asset classes, then it is noticeable that cryptocurrencies deliver the best result. On the one hand, they have the highest return of all asset classes, on the other hand, you can also completely avoid taxes on the capital gain, i.e. on the return, after one year. However, one must also take into account the risk of a loss in value. So if you want to invest risky, you will find a worthwhile goal in the asset class of cryptocurrencies. Anyone who uses cryptocurrencies to generate further income, such as lending, must be aware that tax-free disposal is only possible after the ten-year speculative period has expired.

5.2.2 Investment in enterprises

The remaining asset classes now rank in the hierarchy of the most rewarding forms of investment as follows: By some distance, investments in a company come second. Although there is also an increased risk of losing the invested assets, both the average return and the various options for tax optimization speak for this asset class. Particularly interesting – from very different perspectives – are likely to be innovative startups.

5.2.3. Investment in securities

Securities perform less well in this comparison than investments in companies or in co-entrepreneurships. This is because taxation of profits from the sale of shares and other securities can hardly be arranged. At least, the range of possibilities available to companies for this is significantly greater. Although investments in securities are associated with a relatively lower risk of loss, this must always be taken into account. But here too, it is probably crucial in which securities you want to invest. Therefore, the blanket comparison leads from our point of view to a third place in this ranking.

5.2.4. Investment in real estate

Less risk, but also a slightly reduced return in the foreseeable future can be found in the asset class of real estate. However, here the spectrum of the return to be achieved, similar to the company, can be considerable. But if you do it skillfully, then you can earn the profit from the sale tax-free after the ten-year speculative period.

In our comparison, however, it is also important that real estate prices currently seem to be at a plateau high. So here we differentiate between those investments in real estate that you may have already made and those that you are currently considering. Those who have already invested in real estate are likely to be significantly more satisfied with their investments than, for example, investors who preferred securities as an asset class. However, if you want to invest in real estate now, you should make sure that the investment actually pays off. Another disadvantage compared to securities may be that it is much easier to sell securities than real estate. Those who want to sell real estate often have to be patient.

5.2.5. Fixed-term deposits

As expected, the fixed deposit occupies the lowest position in this ranking of asset classes. Even if interest rates should rise significantly in the near future, the return is unlikely to be worthwhile, if only because of taxation at 25%. That higher interest rates can compensate for the risk of default is only likely if the inflation rate falls again below the level of the interest rate. But that is hard to hope for at the moment.