Bonds Archive - Incrementum

Dear Ladies and Gentlemen

If you belong to the people who pay their bills primarily in Swiss Francs and/or Euros you belong to a rather large cohort of a few hundred million people living most probably somewhere on the European continent.

Today, I would like to show you with a simple calculation why I prefer equities over bonds.

If you keep your money as liquid and as safe as possible in a bank savings-account (hopefully with a bank offering some sort of government guarantee or at least a bank not getting involved in investment banking and/or corporate debt) or you have it invested in Swiss and/or German government bonds, you, Ladies and Gentlemen, will most probably receive 0% interest. Maybe you will even have to pay a small interest for depositing your money at the bank or for investing it in government bonds of short maturity and in any case, you will have to pay some small banking fees here and there on a regular basis.

This means, in the case of you wanting to invest your money in a Swiss and/or German government bond for 10 years because of its relatively low volatility, you will have to accept 0% interest or in other words no income whatsoever from such an investment and even worse, you will actually lose small bits and pieces of your money (fees) over the entire 10-year period. This truly means that at the end of a 10-year period you have less money than when you started and in real money terms, which means adjusted to purchasing power, you may have lost 10% – 20% due to inflation over that period.

To me this seems not a very attractive investment.

On the other hand, if you invest your money over 10 years in some solid listed company that pays regular annual dividends of 4.5%, thanks to the effect of compounding you will receive some 50% return over the same period. True, you will most probably have to accept higher volatility, but doesn’t the proposed return deliver an incentive high enough to accept such volatility?

Ladies and Gentlemen, to me it does!

Now, I know this is a very simplified calculation but both examples are real and possible in today’s market environment. Solid company delivering 4.5% dividend yield on one side and 0% 10-year government bond on the other side.

Think about it!

As always, I encourage you to send me your feedback and/or questions but please don’t forget (instead of hitting the reply button) to send your messages to:

smk@incrementum.li

Many thanks, indeed!

And now, Ladies and Gentlemen I wish you a great day and weekend.

Kind regards,

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG

Dear Ladies and Gentlemen

As announced two weeks ago I was able to interview Mr. Andreas Haeberli, CIO of Profond Collective Foundation. Please find my questions with Andy’s answers for your convenience:

1) What is Profond’s investment goal?

We want to offer sustainably high benefits to our policy holders. When we invest, we therefore focus primarily on real values, i.e. equities and real estate. These asset classes enable us to generate above-average returns in the long term. With optimal diversification, we take risk parameters and financial stability into account.

2) What is your investment horizon?

Pension fund assets are invested over a very long period of around 60 years (40 years of gainful employment and around 20 years of pension entitlement). As a result, short- and medium-term financial markets fluctuations balance each other out well. Therefore, we are not influenced by short-term movements and short-term events in financial markets. We do not engage in any tactical investments or hedges. However, we generally hedge foreign currency risks for nominal values, real estate and infrastructure investments.

2) Where do you see the biggest challenge for a Swiss based pension fund manager today?

The current low level of interest rates presents major challenges to investors. Bonds are traded with a maturity yield of zero and negative interest must be paid on cash holdings. This leads to ever lower investment returns on investment funds. This low compound interest effect has a noticeable negative effect on fixed income investments in the long run.

3) hat are your favourite investments and why?

Long term, equities yield higher returns than bonds. This is shown, among other things, by a much-quoted study by Pictet. That is why we focus on equities and not on bonds. We also invest an above-average proportion in real estate. They are not directly dependent on stock market fluctuations and diversify our overall portfolio well. We also benefit from regular income (rental income). Thanks to these asset classes, we achieve a cash flow return of around 2.5% on the overall portfolio.

4) Are you working with consultants and if, why and if not, why not?

On a case-by-case basis, we draw on the knowledge of advisors in the selection of asset managers. We also call in pension fund experts for certain tasks.

5) How are you investing your private money?

Basically, my private investment activity does not differ from my professional one. The only difference is that I invest a small part of my personal wealh on a short-term basis.

Many thanks, Andy, for your time and the insight!

As always, I encourage you to send me your feedback and/or questions but please don’t forget (instead of hitting the reply button) to send your messages to:

smk@incrementum.li

Many thanks, indeed!

And now, Ladies and Gentlemen I wish you a great day and weekend.
Kind regards,

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG

Schlagwort: Bonds

A simple calculation

Interview with Mr. Andreas Haeberli, CIO of Profond