Financial Terms Glossary: Part 3

Retirement account (Altersvorsorgedepot)

The Retirement account (Altersvorsorgedepot) will be introduced as a state-subsidised private retirement product and will replace the Riester pension. It enables citizens to save for retirement with tax benefits and without compulsory guarantees, allowing capital-market-based investments with higher return potential. The Retirement account is scheduled to launch on 1 January 2027.

Within the Retirement account, retirement assets can be invested in ETFs, actively managed funds or bonds. Earnings remain tax-free during the accumulation phase, and existing Riester contracts can be transferred to the new system. For contributions up to 360 euros, you receive a basic allowance of 50 cents per euro contributed. For additional contributions up to a total of 1,800 euros, 25 cents per euro are granted; the allowance amounts to a maximum of 540 euros per year. For savers with children, there is an additional child allowance: up to an individual contribution of 300 euros per year, every euro contributed is fully subsidised per child. This contributes another 300 euro per child. For individuals under the age of 25, there is also a one-off career starter bonus of 200 euros.

Furthermore, greater flexibility is available in the payout phase, for example through withdrawal plans as an alternative to a lifelong annuity.

In addition, the Early start pension (Frühstartrente) provides a complementary state subsidy for children and adolescents.

Risk tolerance

Financial investments are always associated with some level of risk. Anyone who wants to invest should know and understand the risks of an investment in advance. In addition, investors should understand what amount of losses they can afford financially, and how much risk they can tolerate, and still be able to sleep at night. Both financial circumstance as well as individual attitude will determine someone’s personal risk tolerance.

Misjudging your own risk tolerance can have a significant impact on long-term wealth accumulation. For example, someone who overestimates their own risk tolerance when investing in equities may be likely to sell the shares again at the first drop in price. In doing so, they would realise losses and possibly miss the subsequent price upswing, which costs them returns in the long run. On the other hand, those who consider their own risk tolerance to be too low and invest too conservatively as a result, would likely achieve a significantly lower return in the long term than they should.

Individual risk tolerance is typically determined when investing through a wealth management service such as Scalable Capital's digital wealth management service ("Wealth") through a survey to determine individual capacity for losses and attitude towards risk. For this purpose, variables such as investment horizon, income situation, assets and investment goals are collected.

Robo-advisor

The term "robo-advisor" is used in the press to describe companies that either offer digital asset management or help investors select investment products using digital rule-based methods. Where this refers to a digital wealth manager that is allowed to rebalance investor portfolios, it can trade using algorithms and automation.

Saver’s tax allowance

The saver’s tax allowance (German: Sparer-Pauschbetrag) is an annual tax-free amount for capital income such as interest, dividends, or realised capital gains. Up to this amount, no final withholding tax, no solidarity surcharge and, if applicable, no church tax is due.

The allowance currently amounts to €1,000 for individuals and €2,000 for jointly assessed partners. Investors can make use of the allowance by submitting an exemption order to their bank. Otherwise, the final withholding tax is automatically withheld and can be reclaimed later via the income tax return. (As of: 2026)

Share

Anyone who buys a share becomes a co-owner of the public limited company. This means that they participate in the success or failure of the company - either through the share price development, or through distributions, also known as dividends. Ordinary shares also give shareholders the right to vote at the general meeting, whereas preference shares do not. On the other hand, preferred shares usually pay a higher dividend.

Share buyback

Investors aren’t the only ones who can buy shares, as the public limited company itself can buy its own shares. To do this, the company's management obtains permission in advance at the general meeting. There are various reasons why a company buys back its shares such as to consolidate ownership. In general, the measure supports the share price because it reduces the supply of freely tradable shares.

Short selling

Selling something you don’t actually own? On the stock market, that’s possible. Such transactions originated in commodity futures trading, in order to hedge against future price fluctuations of agricultural products. This instrument is often also used for speculation. In this case, the investor sells a security that they expect to decrease in value, without actually owning it. If they are able to buy it later at a lower price, the short seller makes a profit.

Stop-loss order

Investors use stop-loss orders to protect their individual positions in the portfolio against large price declines. The sell order for a security is triggered automatically once the price falls below a predefined level. Important: This does not mean that the actual selling price is identical to the stop-loss price. It may be slightly lower or higher, depending on where the price has moved after the stop-loss level has been broken.

Synthetic replicating ETFs

Synthetically replicating ETFs (Exchange-Traded Funds) are index funds that replicate an index without buying the underlying assets of the index (e.g. shares).
Synthetically replicating equity funds instead compose their portfolio from a specific basket of securities (at least 90%) and a (collateralised or even over-collateralised) swap (max. 10%). A synthetically replicating ETF constructed in this way thus holds a basket of collateral instead of the individual securities of the index. Via the swap (i.e. an exchange transaction) with a partner, the performance of the basket of collateral is exchanged for the performance of the actual underlying index.
With synthetic replication, fund companies can replicate an index more precisely, i.e. with no or significantly less tracking error than with some physical ETFs. Moreover, some indices, e.g. on commodities or on certain emerging markets such as India, can only be replicated via synthetic ETFs, as the underlying assets cannot be bought or held in an economically viable way. Oil and natural gas are an example of this.
The inclusion of one or more parties in the SWAP transaction creates an additional counterparty risk (default risk) vis-à-vis the swap counterparty.

Volatility

Volatility is a measure of risk that indicates how much the prices of securities fluctuate. The higher the volatility, the riskier the investment. However, high volatility is not generally a bad sign, but also an expression of opportunities for price increases in the security.

Warrants

With a warrant, you participate disproportionately in rising (call) and falling (put) prices of an underlying asset. The price is also influenced by the volatility and the remaining term of the warrant.

Withholding tax

Withholding tax is a tax that is deducted directly at the “source” of the payment and transferred by the paying institution – such as a bank or an employer – to the relevant tax authority.

In a financial context, “withholding tax” often refers to capital yield tax, which is part of the final withholding tax in Germany. It applies to investment income such as interest or dividends. The current rate is 25%, plus solidarity surcharge and, if applicable, church tax. The bank automatically deducts this, unless an exemption order or a valid Non-assessment certificate (NV-Bescheinigung) is on file.

For funds and ETFs, withholding tax is generally not relevant for investors. If a fund includes foreign-source income, the tax treatment is usually handled via the so-called partial exemption, which is automatically applied by the custodian bank.