Five investment tips from professionals: Investing like a family office

Choose low-risk investments with long maturities

Say goodbye to the idea of becoming rich over a short period of time with a lucky investment. When it comes to your investment strategy, you should always focus on a long investment horizon, because even the Family offices invest in the long term. The goal of maintaining capital comes first, even before the desire for higher returns. Family offices invest in funds and shares from companies with low turnover and stable management. Therefore, choose quality companies that are well positioned and can also survive market crises well. Investments in such companies have statistically better prospects of consistent and reliable profits.

Private investors with low equity capital are often tempted by high returns into risky investments in order to quickly have more money. That is a fallacy: The shorter your investment horizon, the higher the risk. However, if you invest over the long term, the effects of crises are also offset and your average return increases over the entire term. A long-term investment horizon is therefore a necessary prerequisite on the path to prosperity.

Invest in alternative investments

Alternative investments such as raw materials, luxury capital goods or even cryptocurrencies are no longer a secret tip. According to the Wealth Report 2020 by Douglas Elliman & Knight Frank, the trend in asset allocation is clearly moving away from traditional asset classes such as stocks and bonds to alternative investments and tangible assets. The advantage for investors is that the risk/return ratio of the asset class also differs. This is because alternative investments can have above-average return potential.

In addition to hedge funds and venture capital, private equity in particular is a promising asset class in alternative investments. Family offices are increasingly using this direct acquisition of company shares in unlisted companies, as this gives them a direct share of the profits generated by the companies. However, regular access to private equity is difficult for private retail investors, as most companies require a minimum investment of 100,000 euros. Since private equity funds are classified as too risky for private and retail investors, they are usually bundled into funds of funds, which are associated with high costs. Investing in such funds of funds is associated with high costs. The return advantage is therefore usually skimmed off in advance.

Luxury capital goods in particular have risen extremely in value over the last decade. Artificial and automotive assets in particular stand out due to their popularity among investors. They too are fundamentally characterized by illiquid market activity, but due to their significantly higher trading volume, they go beyond their niche existence and open up very attractive investment opportunities.

Focus on residential real estate

Investing in residential real estate is a good basis for a balanced portfolio. Family offices also use residential properties to maintain and increase their wealth. After all, real estate is still one of the safest forms of investment, which has proven to be very effective, especially in times of crisis. The profits of an investment in real estate are compared easy to calculate and predict. Existing properties and new buildings in particular, which are foreseeably not likely to incur high expenditure on renovation work, can generate immediate income. A-cities are particularly attractive, as the standard of living there and thus demand for real estate will remain at a high level due to steady population growth, the settlement of innovative companies and investments in infrastructure.

As a private investor, you have the option of investing in real estate via direct investment. Anyone who has the necessary small change buys an apartment building and rents out the apartments. However, this is virtually impossible for retail investors - due to high real estate prices and ancillary purchase costs, there are already Fewer and fewer owners. Alternatively, you can also purchase shares of a real estate investment. If you want to opt for a portfolio pre-selected by the fund manager, classic real estate funds are a possible choice. Although they involve costs, they also generate returns in the form of rental income. Globally oriented real estate funds offer security even if the real estate market in a specific country collapses.

Diversification through multi-asset strategy

Especially in turbulent economic times, diversification through a multi-asset strategy provides a crisis-proof anchor in the portfolio. During the corona crisis, multi-asset products proved to be surprisingly stable vis-à-vis the equity markets. The multi-asset strategy uses extremely broad diversification as a means of spreading risks across multiple asset classes. The multi-asset strategy draws on traditional financial products and combines them together. Stocks, bonds, cash, real estate and infrastructure are selected in line with market conditions. The broad orientation not only provides security, but also makes it possible to react quickly to changes in the market. For example, multi-asset products have growth potential compared to traditional mixed funds with an average annual return of around 5%. They also have the advantage that portfolios can be quickly realigned again.

For private investors, the multi-asset strategy is difficult to set up independently, as small investment amounts are difficult to diversify. However, family offices benefit from the broad diversification of the assets they manage by focusing mostly on asset classes with constant income. High-yield bonds, emerging market bonds, real estate securities with rental income and high-dividend stocks are combined with index funds and riskier investments. Thanks to the multi-asset strategy, large returns can be achieved in the best case and, in the worst case, the losses of riskier investments can be absorbed by the constant profits of secure investments.

Trend blockchain-based digital shares

Traditional trading in financial products is cumbersome and expensive. Blockchain-based, tokenized shares are a good way to escape this entrenched market, at least in part. With tokens, you can directly purchase company shares or finance selected tangible assets. The detour via a marketplace, such as a stock exchange, is avoided and so you can save costs. The purchase is stored in the blockchain in a forgery-proof manner and the tokens correspond to your purchased shares. With this method, you increase your return, because any fee or commission you have on a classic securities purchase reduces your profit in the end.

Trading digital shares is possible around the clock and you can therefore benefit from extended trading hours compared to the stock exchange. With this method, you can also invest directly in small and medium-sized companies. Furthermore, they can benefit from tokenized tangible assets, as this allows an asset with a very high individual valuation to be divided into any number of shares. For private investors, this creates investment opportunities that were traditionally reserved only for very wealthy investors. In contrast to funds, digital shares also allow you to put together your portfolio individually according to your own wishes. Broad diversification and investment in illiquid asset classes can give you a solid return even in periods of low interest rates.