Private old-age provision is an existential issue of the present day:
It will certainly stay that way as the government pulls back – social security benefits decline. The number of people receiving social assistance has been rising for years. Strokes of fate can also confront people unexpectedly with gaps in supply. These include, for example, prolonged illness and unemployment.
Money and capital investments are regularly sold on the basis of commissions. In individual cases, double-digit amounts may be involved. Only the rest of your investment can then “work for you”. Sometimes it takes years until the investor is back at 100%, i.e. the actual amount invested plus the commission has been earned again.
Unfortunately, most advisors and brokers are oriented towards achieving as much commission as possible – after all, a portion goes into their own pockets. Therefore, truly independent advice is necessary. There are also often commission-free prices for financial products – in which case the adviser will charge a fee for their work. Many large companies have been using fee-based consulting for years, because the fee is usually much cheaper than the usual commission.
Before you start to build up assets, you should ensure that you have sufficient protection against risks. Perhaps you own valuable household goods that you want to insure against loss. There are considerable gaps for most people when it comes to the loss of income due to the need for long-term care, prolonged illness, occupational disability or incapacity to work. Not to be forgotten would also be the private liability insurance – in the case of damage it could come to the private bankruptcy. If you don’t hedge these risks, your “private financial planning” or wealth accumulation can literally be built on sand.
And do not forget that the prices (premiums of the insurance companies) – with almost the same performance – can differ by several 100%!
Just as the wise businessman says that profit lies in the purchase price, the same applies to capital investments. Only about every second ?tax saving model? develops as promised in the prospectus. Often it comes with investments, for example into enterprise participation or real estates, later to disappointments, because the purchase price was too high. Here specialists should be switched on, who are versed in the evaluation: It is better to invest a few percent in an expert than to find out afterwards that you have given away a huge amount, as it were. No one really enjoys the task of suing a bad consultant or bank later – a professional before investing costs less.
Total risk of loss:
Investments can be complicated, so difficult to navigate. There may be hidden risks here. A typical example is the calculation with prices that are not in line with the market: This can be used to fool an investor into believing an enormous profit will never be made. Or think of a large-scale project (e.g. biogas plant, wind power plant) for which, on closer examination, no official operating and building permit has yet been issued. Who would like to participate in a real estate project when they know that the developer has already led over 100 construction companies into bankruptcy? After all, it may be a hotel project where the hotel operator doesn’t even have the money in his pocket for the first rent:
Even experts cannot always recognise such hooks and eyes immediately. Capital investments on credit: The advertising brochures often promise the blue of the sky. Here the inexpensive credit, perhaps still more inexpensive by a bank in Japan or Switzerland, and there the investment with the (nearly) safe net yield. The dream of the fast money bursts like a soap bubble, if the ?sample calculation? turns out later as illusion. With the consultation of the salesman then each reference to the risks was missing. Such offers of a capital investment on credit basis are usually more risky than the employment in the gaming house. Therefore, such capital investments should only be made with a small fraction of the assets.
The popular saying is to put all your eggs in one basket. If there is a considerable risk of total loss in the investment, you may end up empty-handed. It is therefore advisable to diversify, i.e. to invest in different assets. The more diverse or broad this diversification is, the better if you want to strive to keep overall risks in check. This risk diversification can be optimised. Modern EDP programs , make it possible to assess risk and return individually and as a whole. A professor at the University of Chicago was awarded the Nobel Prize for this method in 1990. As unbelievable as it sounds, your investment in bonds can improve significantly, i.e. the return can increase or the investment risk decrease, if equities are added for a few percent. This optimization is a typical task for the (bank)-independent consultant. Tax saving models: Tax regulations change several times a year. What is “favourable” from a tax point of view today may become uninteresting tomorrow.
If you want to build up a fortune, then first and foremost do not orientate yourself on tax effects. More important is the “credit rating”, because if a bond (example: Argentine bond) is not repaid, the value drops to a minimum within a few days. Also, don’t be fooled by high profile brochures that promise you 8 or 10% “payout” – because if this isn’t actually earned, then you’re “eating” your capital in the bottom line. Asset structuring: The starting point for asset structuring is current income and expenditure, as well as a reserve for unexpected developments. In addition to risk diversification, the investment period should also be diversified, into short-, medium- and long-term commitment of the capital. The answer to the question of the extent to which equities should be included, for example, is then also based on this. After all, rates may be very low just when you are in desperate need of money.
If you yourself are professionally educated, you can study a whole range of specialist publications and, above all, read critical trade press. This may often involve effort and expense – the effort is worth it, because this way you can find out who is not considered reputable. Most magazines sold at the newsstand or gas station do not provide information about this until a case is revealed as a “fraud scandal” many years later. Specialist advice: If you are seeking independent advice, you should play it safe. For insurance products, for example, the insurance broker is recommended. You should always get the expert’s advice in writing. Even with investments, your advisor should be adequately insured, have a good reputation, and most importantly, education and experience. Because most advisors only want your best, your money !
by Dr. Johannes Fiala
Our office in Munich
You will find our office at Fasolt-Strasse 7 in Munich, very close to Schloss Nymphenburg. Our team consists of highly motivated attorneys who are available for all the needs of our clients. In special cases, our law firm cooperates with selected experts to represent your interests in the best possible way.
About the author
PhD, MBA, MM
Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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