The main purpose for my capital investment is to preserve my wealth. I am especially interested in secure investments.
The desire to preserve one’s wealth is a frequently mentioned goal. What is often meant is preservation after costs, taxes and inflation. In the current situation – in particular the low interest on bonds and the simultaneously high inflation – this is a challenge. In order to achieve one’s goal, it is necessary to accept a certain level of risk, but also of opportunities. There are many types of risks and opportunities:
- exchange rate risk
- fluctuation risk
- issuer risk
- price risk
- reinvestment risk
- and so on.
Each of these risks also represents an opportunity at the same time. It is important to know that an opportunity always implies risk as well. And vice versa. In capital investment, we have to choose between competing objectives. This is a difficult task. The essential parameters for success in capital investment are:
• Time (fungibility)
• Risk (security)
• Return
The magic triangle
Together, they form the magic triangle of capital investment. This may sound like overly simple, basic knowledge. And yet it’s true. These parameters compete with one another and influence each other to a high degree. All points within the triangle are a compromise between the three corner points. You have to decide what compromise you are willing to make. There is no such thing as capital investment with the highest security, the greatest return and the highest fungibility at the same time.
And, meanwhile, there is another point, which makes an square out of the triangle:
- Responsibility of the investment
Where’s your point in the square? We’ll be happy to help you find it.