You have significant wealth and know that a careful investment strategy is crucial to not only protecting your money, but also growing it. You don't want to just blindly invest your assets in any investment products. The construction of your portfolio is essential to minimize your risk and achieve your investment goals. To help you invest your wealth properly, we have put together the top 5 tips from the most successful investors worldwide. This is how you set up a future-proof investment strategy from which your assets will benefit over the long term. From the importance of diversifying your investments to considering your risk appetite and the long-term perspective of your portfolio, these tips will help you grow your wealth safely and successfully. How do Germans invest?We asked ourselves an important question with the Handelsblatt Research Institute 2022: "How do Germans manage their wealth?" In the resulting study, 300 people aged 18 and over with total assets of at least 500,000 euros who also own some form of investment product or who use, for example shares, home savings contract, time deposit, savings book or an ETF.The study shows that the majority of wealthy Germans mainly invest in shares and real estate. Reinhard Panse, Chief Investment Officer of FINVIA Family Office GmbH, explains the lack of knowledge among Germans when it comes to finances. In Germany, the most important basic requirement for developing a strategy is met less frequently than in comparable countries: namely the relevant knowledge. Hardly any useful financial knowledge is taught in schools here. Therefore, the Germans do not seem to know how risky fixed-interest forms of investment in highly indebted countries are in the long term. Germany is the only large industrialized country where investors have lost almost everything with this form of investment twice in the last hundred years because of the high debts caused by the world war." The conclusion: Less wealth also means less experience with investing and therefore less know-how that can be passed on to the next generation. As a result, investments are increasingly being made in asset classes that require a low entry hurdle. According to Reinhard Panse, the financial industry does not help with this gap in knowledge either: "The financial industry is not helpful for many investors here because it is still – at least partially – geared towards product sales. Unfortunately, the objective development of a long-term investment strategy tailored to investor needs is a rarity. The complete study can be found here. How do Germans lose their money? This spreads the misconception that most Germans only have one asset class to invest their assets in – equities. Shares, especially ETFs, are spread around the world, which makes them part of successful investing. However, basing the entire wealth strategy on just one asset class is not a good idea. The global stock market is more volatile than alternatives such as private equity. Especially in times of crisis like the dotcom bubble or the sharply falling prices in 2022, the Germans lose their money. We hoard our money like no other. Those who don't invest in stocks have their money parked in the account. This is one of the most devastating ways to "invest" money. Rising inflation reduces assets year after year and causes a large devaluation of savings. The situation is very different for wealthy investors worldwide. The so-called High-Net-Worth-Individuals (HNWI) invest in all common alternative investments. For example, a whopping 16.8 percent is accounted for by private equity funds and 16.2 percent by private equity holdings. Wealthy investors therefore recognize the great added value and, above all, the stability that other asset classes, such as private equity, offer their portfolios. Tip 1: Rely on diversification Broad diversification of your investments is an important factor when it comes to investing your assets sensibly. Diversification helps minimize your risk and reduce losses while securing the best investment opportunities. Each asset class has its own advantages and disadvantages. An optimal mix of the respective asset classes maximizes the advantages for your assets, while disadvantages such as volatility are kept as low as possible. Why it is important to diversify your investments When you invest all your money in just one asset class, you're putting all your eggs in one basket. If this asset class does not perform well, it can lead to significant losses. By diversifying your portfolio across multiple asset classes, you minimize the risk of your assets being affected by fluctuations in a single asset class. The most important step in determining which asset classes with which weighting best suit you and your assets is Strategic Asset Allocation – SAA for short. A healthy, diversified wealth stands on several stable pillars and is thus prepared for all eventualities. The SAA is the essential building block for your future-proof assets. It is the blueprint, foundation and parachute for your assets at the same time and defines the long-term guidelines and guidelines for your investment portfolio. The SAA takes all your individual needs into account and incorporates them into a tailor-made wealth strategy. The capital market is constantly changing. An SAA adjusts if changes create a new optimal allocation and investment opportunity. Of course, only if the adjustments also fit your given guidelines and risk tolerance. Tip 2: Consider your risk tolerance As a wealthy person, you should definitely take your personal risk tolerance into account when structuring your portfolio. This is important in order to appropriately risk your wealth and ensure it meets your goals and needs.How to find the right risk/reward balance for you How much money do you need to have available in the short term? Should your private funds also be available to your company? How big can short-term losses be? Answering these questions is essential for calculating your individual risk tolerance. Finding the right balance between risk and return is one of the most important aspects of successful investing. The diversification mentioned above also plays an important role in your risk appetite. Equities, as a liquid asset class, are very susceptible to crises, as many investors sell their shares there, driven by emotions, thereby triggering a snowball effect. However, they also offer high return opportunities. This risk can be offset by other asset classes (illiquid) that are more resistant to crises. Here, for example, private equity or real estate, but also gold and liquidity are available. With an optimal allocation, investors receive a portfolio that stands on several secure pillars and a large or even complete loss of assets seems almost impossible. Which investment strategy is suitable for you depends heavily on your emotional and economic risk tolerance. Liquid investments with low volatility are particularly suitable if other family members are dependent on your assets or, for example, your private assets should also be available to your company as short-term financial resources. Tip 3: Stick to your strategy The most important rule of investing is to stick to your strategy and not be influenced by short-term fluctuations. Think long-term and concentrate on your investment goals and the guidelines for your assets, which ideally have been determined in advance within your individual asset allocation. Why it is important to think long-term Capital markets can be volatile and it is perfectly normal for the values of investment products to fluctuate over time. Regular monitoring of your portfolio, as is the case with FINVIA, is therefore essential. In this way, you ensure that your investment goals and the associated willingness to take risks are always taken into account, even in the event of fluctuations in the capital market. Most losses are incurred as a result of emotional and impulsive decisions. This is precisely where an investment strategy protects you from knee-jerk reactions that could have a negative impact on your assets. Such fluctuations should only be reacted to with the involvement of your SAA and in consultation with your advisor. The motto is: keep a cool head and act rationally. Tip 4: Use professional advice It's understandable that as a wealthy person you don't want to just throw your money into any investment product without knowing exactly how it works and whether it meets your goals. With so many investment products, it's not always easy to find the best ones for your portfolio. So don't be afraid to fall back on the expertise and experience of professional asset managers. Your competent contact person can respond individually to your needs and goals and carry out a targeted analysis of your portfolio. You will then receive targeted investment recommendations based on your risk profile and investment goals. The ongoing monitoring and adjustment of your portfolio to changing market conditions is also one of the tasks of a professional advisor. Good advice is characterized by the fact that it is product-independent and that a solution is worked out together with the customer that is tailored to the personal situation and individual needs and preferences. Tip 5: Be prepared for rising interest rates and structurally higher inflation The last few months have shown how important it is to be well prepared for rising interest rates. Rising interest rates can have both negative and positive effects on your assets – depending on how your portfolio is structured. When interest rates rise, the stock market reacts in a volatile manner. That's because most investors fear that companies will find it more expensive to borrow and thus stifle investment, negatively impacting growth and revenue. However, stocks from the financial sector, which are becoming more profitable due to rising interest rates, offer opportunities. Stocks in stable areas such as health care and consumer goods now offer more attractive opportunities. Bonds also benefit from rising interest rates. Bonds are a way for companies (corporate bonds) and countries (government bonds) to borrow money without having to rely on bank loans. If interest rates rise in general, then the interest rates for investors who have invested in bonds will also rise. But beware: This is only a positive development for investors who want to invest in bonds. However, the situation is different for investors who are already invested in bonds. The interest rate may not be changed during the term (e.g. 10 years). However, since a higher interest rate is now possible on the same asset class, the prices of existing bonds fall because they have become uninteresting for investors. You can only benefit if you are well prepared for rising interest rates. A topic that you as a wealthy person should definitely deal with. Summary It is important for successful wealth that it is carefully managed and that you pursue an investment strategy that corresponds to your investment goals and your risk appetite. Broadly diversifying your investments and creating your individual asset allocation are important factors in minimizing your risk of loss and increasing your chances of making a return. Long-term thinking and the awareness of not being influenced by short-term fluctuations are another major advantage. You can also use the knowledge of experts and fall back on professional advice if you are unsure about some aspects of your assets or would like to draw on valuable support.
