Portfolio strategy: Tangible assets as a basic portfolio component
The saying “You shouldn't put all your eggs in one basket” has always been justified in the financial world. Because it is much riskier to invest capital in just one asset class than to invest it in a diversified way. In turbulent economic policy times such as these, a sensible asset allocation or portfolio strategy is even more important. The enormous volatility on the capital markets, numerous uncertainty factors and the difficult to calculate monetary policy of central banks make personal wealth planning particularly complex and risky. Find out what a sensible portfolio strategy can look like and which components investors should consider.
What is a portfolio?
In the financial sector, a portfolio is the inventory of investments made by an investor. These assets may include various investments, such as stocks, bonds, real estate or derivatives. Assets are usually managed through one or more custody accounts, which also process the purchase and sale.
However, the investments included in the portfolio should not be selected according to personal taste, but should be put together sensibly. For example, based on the so-called”Magic triangle“, which symbolizes return, risk, and liquidity. It states that the three characteristics should always be in balance, but that they can never be fully met when investing money. For example, equities sometimes offer a high return opportunity and liquidity, but are comparatively uncertain. A call money account, on the other hand, offers both a lot of security and maximum liquidity, but currently barely generates any returns. A sensibly structured portfolio should therefore balance the factors and serve all three in the best possible way.
The basis for this is strategic asset allocation, which serves as a long-term orientation and also takes into account all key individual conditions and goals of the investor. When structuring their portfolio, investors consider, among other things, how much capital they have available, what personal investment goals they want to achieve and what risks they want to take on. The result of a diversified portfolio is ideally a good risk/opportunity ratio, which proves stable when there are contrasting developments in different asset classes in times of crisis.
What role do tangible assets play?
Targeted diversification with tangible assets such as real estate, precious metals, stocks (= company shares), raw materials or Alternatives can, on the one hand, help to increase independence from financial markets and, on the other hand, provide some protection against inflation. Investments in tangible assets are primarily aimed at individual capital preservation and risk reduction. Wealth accumulation and return targets are of secondary importance. The reason for this is the assumption that tangible assets have a factual substance whose value exists independently of market developments and therefore remains relatively unaffected by market fluctuations.
However, this does not mean that investments in real assets have no return potential. Quite the contrary: alternative investments such as art or Classic Cars Over the past ten years, some have achieved two-digit or even three-digit returns. Important stock indices such as the Dax or Dow Jones brought it up on historical average, including dividends around 8% return p.a.. The evaluation of Professor Moritz Schularick, who carried out a study comparing the performance of stocks, bonds and real estate in the 16 most important industrialized countries since 1870. The result: Including increases in value, rental income and maintenance costs, residential properties deliver an average return of 8.7 percent per year worldwide. Bonds, on the other hand, are just as far behind at just 1.5 - 2% as bank deposits with a yield of just 0.3 percent.
However, real estate returns vary significantly from country to country. For example, the researchers found that Australia has historically had the highest real estate returns, while Germany is more likely to be at the bottom. On the other hand, the real estate market in this country is considered relatively stable, whereas in the USA, for example, house prices can fall massively due to high private debt.
Whether real estate is a profitable and stable investment therefore depends heavily on its location, the time of purchase and the holding period. Because traditional real estate purchases only pay off after years due to high ancillary purchase costs and taxes. But especially in major German cities and growth regions, “Betongold” has made its name with it over the past two decades double-digit price increases All honor.
How can investors invest in tangible assets?
When optimising a portfolio that includes tangible assets, it should be borne in mind that tangible assets are generally not subject to permanent valuation and that the ability to sell (or liquidity) is also usually limited. Therefore, in addition to diversification from a risk/return perspective, the proportion of assets that can actually be invested in the long term must also be defined.
However, it is not always possible for private investors to directly participate in one or even more tangible assets due to high investment amounts or the reservation for institutional investors.
Buying a property in particular is particularly cost-intensive and therefore makes it difficult to diversify the portfolio. This is because the high investment costs largely do not allow diversification across several properties. Real estate is often a cluster risk because significantly less money flows into other types and properties of investment.
real estate funds, crowdinvesting, or digitized shares On the other hand, enable flexible investment in otherwise relatively “illiquid” tangible assets, such as real estate, art or classic cars. Tokenized assets do not require a large amount of equity or borrowing. The entire process, from procurement and management to sale and distribution, is professionally handled — minimal effort for investors. In addition, they can be traded at any time and thus enable investors to diversified portfolio of tangible assets with attractive return opportunities while maintaining personal liquidity.
