Tailor-made solutions for investment, insurance and finance

The three pillars of success - the magic triangle in investing

Digital innovations - Tax-optimized investments - Individual consulting

Our partners

The basic principle of the magic triangle in investing

For savers, deciding which products are suitable for their investments is often difficult. Anyone who delves into this topic will quickly realize that relying on just one financial product is not advisable. A balanced mix of different investment products diversifies risk and increases potential returns. This is where the so-called "magic triangle of investing" comes into play; it helps you divide your investments into liquidity, return, and risk – the three cornerstones of successful wealth planning.

What is meant by the magic triangle of investing?

The magic triangle of Investment It lays the foundation for successful wealth planning. It establishes the three essential aspects. Security, liquidity and return They are related to each other. This allows savers to determine how their investment mix should be structured.

No investment fully guarantees security, liquidity, and return simultaneously. An investment that offers both security and liquidity typically comes with a lower potential return.

Therefore, it is crucial to diversify your capital. This means not investing all your assets in a single financial product, but rather using different investments to achieve a successful portfolio. Wealth accumulation to achieve this. All three aspects – security, liquidity and return – should be taken into account, with their weighting corresponding to personal preferences.

The three cornerstones of a successful investment

Security

The term "security" describes the extent of the risk of loss associated with an investment. In principle, there are no completely risk-free products; however, some investment types are considered particularly risky. These include, for example... Shares and crowdinvesting. ETFs and funds are in the medium risk range, while savings accounts, money market accounts, fixed-term deposits and precious metals are considered relatively safe investments.

It's important to note that the safer a financial product is, the lower the potential return. Those who prioritize high returns must be prepared to accept higher risks.

liquidity

Liquidity indicates how important it is for investors to be able to access their capital at short notice. For example, funds can be withdrawn from a savings account or a money market account at any time. Investments in stocks or funds offer less flexibility and can result in losses if the capital is withdrawn prematurely. When investing in property Liquidity can even approach zero.

As a saver, you therefore have to decide whether you want to have access to your invested money at any time. However, higher liquidity usually means a lower potential return.

return

Those who want to grow their capital efficiently focus on returns. Two factors are crucial here: A longer investment horizon is advisable to achieve the highest possible profitability. This is especially true for funds, ETFs, and real estate. saver Plan for a timeframe of at least five years, and even 15 to 20 years for real estate. Furthermore, higher returns come at the expense of security: investors must accept greater risks for higher potential returns.

For example, if you are saving for retirement and only have a short time left, you should invest in more conservative products to minimize the risk of loss. However, if you have plenty of time and losses can be more easily absorbed, you can take on higher risks to maximize potential returns.

A detailed examination of the magic triangle

A triangle results from the three pillars of successful wealth planning, since always only two aspects These aspects can be taken into account. The third aspect on the opposite side cannot be combined with it.

A savings account can combine the components of security and liquidity, but it cannot simultaneously focus on returns. Real estate, on the other hand, can generate high returns and offer security, but as a capital investment, it is not liquid and requires a long investment horizon.

The following combination possibilities arise when using the magic triangle of investments:

Security and liquidity

These investment options offer a low risk of loss while providing relatively quick and easy access to capital. They include savings accounts, fixed-term deposit accounts, and passbook savings accounts. They are characterized by a fixed interest rate and are easy to plan for. Since money can be withdrawn as needed, these investment options are also suitable as savings accounts.

However, security and liquidity come at the expense of returns.

Security and return

The aspects of security and return are more difficult to reconcile, as the highest possible return can be achieved on the capital market. However, capital market products carry a risk of losses.

Those who still want to invest safely and with potential returns choose real estate. However, this requires the capital to be invested for a long period. Alternatively, they could invest in government bonds. In both cases, however, the money is tied up for a long time and cannot simply be withdrawn when needed.

Return and liquidity

As mentioned earlier, the capital market offers the highest potential returns. It combines the aspects of return with liquidity: stocks and ETFs allow you to withdraw money at any time while simultaneously realizing your profit potential. However, this isn't always advisable, as premature withdrawals can lead to significant losses – there's little security. Therefore, it's generally recommended to invest capital in ETFs for at least five years.

How to use the magic triangle of investing

The magic triangle of investing not only illustrates the fundamental elements of successful wealth planning, but also helps to optimally invest capital by showing the relationship between the goals that can be pursued when investing: liquidity, profitability, and security.

The magic triangle can be used to... Balance between the three goals Finding. This often means investing in different products. This is also referred to as a Diversification in investments; the capital is distributed to reduce risk and fully utilize the potential. For this, I determine which aspects are particularly important to me.. These will then be given the most consideration.

If you want to invest your money with a focus on returns and minimized risk, I recommend government bonds and real estate funds. However, these have long maturities, and it's difficult, if not impossible, to withdraw capital early. To maintain liquidity and be prepared for financial emergencies, you can also open a savings account for reserves. The primary focus, however, is on security and returns, which is why the majority of available capital is invested in government bonds or the real estate fund.

Determine your investment profile

To make the most of the investment triangle, I'll define your personal investment profile. This will clarify which aspects are particularly important to you and where you should focus your investments. The following points will be defined:

1. Your goals: Are you saving for retirement or a new car? What do you want to use the money for?

2. Your needs: Your financial needs will depend on your goals. For example, someone saving for retirement needs more capital than someone saving for a trip.

3. Your values: Are there specific values you'd like to consider? Some investors invest in sustainable investment products or prefer certain sectors.

4. Your financial resources: It's particularly important to determine how much money you can invest. Do you have larger sums available, or would you prefer to save with regular contributions? This will also determine how liquid your investment needs to be. If you already have savings, your focus might be more on security and/or returns. If you haven't accumulated much wealth, you shouldn't neglect the aspect of liquidity to be prepared for potential financial difficulties.

5. Your risk tolerance: Do you want to achieve the highest possible return and are therefore willing to accept a higher risk of loss? Or do you prefer safe investments, which in turn come at the expense of returns or liquidity? Your personal risk tolerance is an important aspect in choosing the optimal financial product.

All these points are important for efficient and needs-based wealth planning. However, it is often difficult for laypeople to match their values and preferences with the right financial products. That's why it's especially important for them to seek professional help.