wealth management
wealth management
Podcast
1.9.2023
A clearly defined investment objective allows investors to tailor their strategy to their specific needs. Some examples of different investment objectives could be
The path to achieving these objectives can vary and may involve different asset classes such as equities, bonds, real estate or alternative investments. It is important to be aware of the opportunities and risks of each of these and to evaluate them in the context of your personal investment objective - both in isolation and in relation to each other.
Below you will find the basics you need to determine this investment objective.
At the outset, consider what return you expect from your investments, minus tax obligations and costs. Is it important to you to maintain the real value - the purchasing power - of your wealth , i.e. to protect it against inflation? Or are you interested in building it up and increasing it sustainably?
Let's take a look at two examples of people:
Person 1 is a professional sportsman in his early 20's. He is still at the beginning of his career, has an attractive income and is aware that he still needs to make provisions for his future. It is important to him to increase his wealth as long as he is an active player - for this he needs a high return.
Person 2 is an entrepreneur in his mid-60s who wants to plan his retirement without offspring. He has a larger share capital, but generates far less income. His goal is to preserve value. He would like to retire from work with peace of mind and not worry about his standard of living. Consequently, he would opt for more security in his investment.
Risk tolerance is an essential aspect to consider when formulating an investment objective. Every investor has a unique attitude towards risk. Some are willing to take greater risks to achieve potentially higher returns, while others prefer a more conservative approach and value stability. Honest self-reflection on your own risk appetite is essential to develop an appropriate and balanced investment strategy. Sparring with an independent advisor can also significantly increase the level of knowledge here.
If we look at our examples again, two different profiles emerge.
If we were to ask the professional sportsman , he would agree to a higher risk than the entrepreneur. On the one hand, this is because he is aiming for a higher return and knows that he has to factor in more uncertainty to achieve this. On the other hand, if in doubt, he can rely on his secure income, which will enable him to make further investments if the worst comes to the worst. Thanks to his high degree of flexibility, all asset classes are basically open to him.
The situation is different for entrepreneurs . Although he has solid basic assets, his desire for a secure retirement prevents him from taking major risks. At the same time, he will soon no longer be actively generating income and therefore has less scope to rebuild in the event of a loss. He will therefore concentrate on established investments with lower returns that are considered safe.
Before you decide on the allocation of certain investments, it is important to know your liquidity requirements . Ask yourself how quickly and easily you need or want to access your invested capital. Liquidity requirements can vary greatly depending on individual circumstances and goals. While some investors may be investing for the long term and can do without liquidity in the short term, others may need quick access to their funds for unforeseen expenses or emergencies.
This would be an advantage for our professional athlete , alternative investments such as private equity or real estate into the portfolio. As he has a high monthly income that significantly exceeds his living costs, the illiquidity of these asset classes does not restrict him and offers him exactly the return opportunities he is looking for to build up assets for the end of his career, which is still a long way off.
A long-term strategy would also be advisable for the entrepreneur . Although this should also include illiquid asset classes, it should focus on exchange-traded investments so that he can easily ensure his livelihood in retirement with regular withdrawals.
Once you have thoroughly examined your personal situation and potential investments, it is of course also important to consider your individual preferences. The question is: Are there investments that you would like to use because they match your values and views?
A good example of this is impact investing. In recent years in particular, many investors have made it their mission to make a significant contribution with their wealth investments. The focus is no longer solely on their own profit - it is much more about supporting social and environmental projects. Today, there are also many opportunities in the liquid sector to support companies on the basis of their values and their own views. It is always worth taking a closer look - wherever you focus, you will find options that suit your personal preferences.
In summary, it is crucial that you are clear about your investment objective. It is not enough to simply have the general intention of securing your wealth . Considering your individual risk tolerance and liquidity requirements is essential in order to develop a customized investment strategy that meets your personal needs and objectives. Only through thorough self-reflection and consideration of these factors can you make the right decisions and successfully pursue your investment goal.
wealth management
1.9.2023
Lothar Henning
From wealth accumulation to generational planning, one investment goal is never the same as another. So what should investors consider before deciding on certain asset classes? What questions need to be clarified in advance and how do their answers affect the individual strategy?
A clearly defined investment objective allows investors to tailor their strategy to their specific needs. Some examples of different investment objectives could be
The path to achieving these objectives can vary and may involve different asset classes such as equities, bonds, real estate or alternative investments. It is important to be aware of the opportunities and risks of each of these and to evaluate them in the context of your personal investment objective - both in isolation and in relation to each other.
Below you will find the basics you need to determine this investment objective.
At the outset, consider what return you expect from your investments, minus tax obligations and costs. Is it important to you to maintain the real value - the purchasing power - of your wealth , i.e. to protect it against inflation? Or are you interested in building it up and increasing it sustainably?
Let's take a look at two examples of people:
Person 1 is a professional sportsman in his early 20's. He is still at the beginning of his career, has an attractive income and is aware that he still needs to make provisions for his future. It is important to him to increase his wealth as long as he is an active player - for this he needs a high return.
Person 2 is an entrepreneur in his mid-60s who wants to plan his retirement without offspring. He has a larger share capital, but generates far less income. His goal is to preserve value. He would like to retire from work with peace of mind and not worry about his standard of living. Consequently, he would opt for more security in his investment.
Risk tolerance is an essential aspect to consider when formulating an investment objective. Every investor has a unique attitude towards risk. Some are willing to take greater risks to achieve potentially higher returns, while others prefer a more conservative approach and value stability. Honest self-reflection on your own risk appetite is essential to develop an appropriate and balanced investment strategy. Sparring with an independent advisor can also significantly increase the level of knowledge here.
If we look at our examples again, two different profiles emerge.
If we were to ask the professional sportsman , he would agree to a higher risk than the entrepreneur. On the one hand, this is because he is aiming for a higher return and knows that he has to factor in more uncertainty to achieve this. On the other hand, if in doubt, he can rely on his secure income, which will enable him to make further investments if the worst comes to the worst. Thanks to his high degree of flexibility, all asset classes are basically open to him.
The situation is different for entrepreneurs . Although he has solid basic assets, his desire for a secure retirement prevents him from taking major risks. At the same time, he will soon no longer be actively generating income and therefore has less scope to rebuild in the event of a loss. He will therefore concentrate on established investments with lower returns that are considered safe.
Before you decide on the allocation of certain investments, it is important to know your liquidity requirements . Ask yourself how quickly and easily you need or want to access your invested capital. Liquidity requirements can vary greatly depending on individual circumstances and goals. While some investors may be investing for the long term and can do without liquidity in the short term, others may need quick access to their funds for unforeseen expenses or emergencies.
This would be an advantage for our professional athlete , alternative investments such as private equity or real estate into the portfolio. As he has a high monthly income that significantly exceeds his living costs, the illiquidity of these asset classes does not restrict him and offers him exactly the return opportunities he is looking for to build up assets for the end of his career, which is still a long way off.
A long-term strategy would also be advisable for the entrepreneur . Although this should also include illiquid asset classes, it should focus on exchange-traded investments so that he can easily ensure his livelihood in retirement with regular withdrawals.
Once you have thoroughly examined your personal situation and potential investments, it is of course also important to consider your individual preferences. The question is: Are there investments that you would like to use because they match your values and views?
A good example of this is impact investing. In recent years in particular, many investors have made it their mission to make a significant contribution with their wealth investments. The focus is no longer solely on their own profit - it is much more about supporting social and environmental projects. Today, there are also many opportunities in the liquid sector to support companies on the basis of their values and their own views. It is always worth taking a closer look - wherever you focus, you will find options that suit your personal preferences.
In summary, it is crucial that you are clear about your investment objective. It is not enough to simply have the general intention of securing your wealth . Considering your individual risk tolerance and liquidity requirements is essential in order to develop a customized investment strategy that meets your personal needs and objectives. Only through thorough self-reflection and consideration of these factors can you make the right decisions and successfully pursue your investment goal.
About the author
Lothar Henning
Lothar Henning has been Managing Director of FINVIA Family Office GmbH since April 2020. He began his career at Bethmann Bank in 1991 and spent a total of 29 years there. His activities included the securities division, the strategy department of wealth management and the product department. For the last ten years, he was the bank's branch manager in Frankfurt.
