Asset Allocation versus "Magic triangle"

Around an optimal investment portfolio - in the specialized jargon Asset Allocation - to reach is necessary a clear determination of the investment objectives. The allocation and weighting of a portfolio depend inevitably on your investment objective and the investment period desired. With these two defaults and the consideration of its personal financial situation one can determine now their individual point of view within the „magic triangle".

The „magic triangle" manufactures the purchase of current yield - risk - liquidity. The "magic" proceeds from the fact, that these three goals can never point to a direction. Rather the investor must decide for a direction and make thus for the other concessions.

If one is ready to incure a high risk, the possibility is given a high current yield. Or one takes a small risk, then one must buy appropriately one for current yield with a long investment duration. Not forgotten one may do here again the connection of the liquidity. Because if a majority of the money is to remain at short notice available, the current yield cannot fail above average highly.

In order to be able to thus optimize the portfolio purposefully, first the prepared to take risks must be determined. During the investment period one can backclose then on the possible current yield. In the reality however, much too often without consideration for the personal chance/risk profile one invests. Many investors shrink from themselves at the trouble to formulate its allocation of fortune and goals desired clear. The longer the time interval for the planned investment is the more important, is however this basis work.  As already John D Rockefeller said: "It is often more intelligent to think one hour about its money than a whole month for it to work".

As already determined, the investment period plays beside the prepared to take risks shank the most important role. Straight ones with shares can be attained usually higher current yields than for example with loans, if these remain during a longer period in the portfolio. But share is not equal to share. Each share reflects the value of the respective enterprise on the market again and is subject thereby also to the economic situation and economic cycles.

But also favorable opportunities, its portfolio lie exactly here by purposeful investments in one or other direction to steer with the extension of the European Union. Many Blue chips of the western euro countries represent a relatively safe investment with moderate profits, whereby large eastern European stocks function as possible money-maker, without a too large risk to reveal. In 2004 profits on exchange of over 50 % or 100 % were not rarity at large eastern European values.  Small values manage here not outside, should be observed and analyzed however still more purposefully and more intensively. Correctly assigned, risk develops however values current yield-bringing also in small portions often to the "turbo" of a Portfolio. For the necessary provision of information there are possibilities in the age of the internet sufficiently. Worth knowing over the European markets and their connections and possibilities supply with also the ESI to them.

Purposeful diversification on European level can contribute besides of still far to the minimizing the risk its Portfolios.  Which advantages itself devoted from the diversification and which is to be considered thereby, you can reread in our other investor information "Diversification for minimizing the risk in portfolios".

If the investor meets his investment decisions, is apart from the necessary information to consider and the necessary knowledge also the psychological investor behavior. While handling profits and losses scientists observe again and again the same errors of the investors. Profits are however often too fast realized "celebrated", while one does not admit oneself losses gladly. One hopes for the fact that the price recovers again and risks so still higher losses.

If you are not safe of enough itself as investor or do not have the time to supervise and optimize your portfolio, you do not have to do therefore without the possibility of the share investment. Apart from unit trust fund offer also financial service advisors as well as bank and fortune advisors many possibilities of taking part actively in the economic development over shares. The information projection, which these financial experts bring into their products and consultation, you should bring your investment objective more near.

Result: current yield, risk and liquidity face each other in the structure of fortune, by clear definition the own, individual prepared to take risks shank and the investment objective are the adjustment of the portfolio particularly by the new, rising stock markets in Europe profitably and chance-rich possible.

© ESI 2005