Gold, real estate, savings deposits and the like: What about diversification?
Szeiler Ingrid
MMag.  Ingrid Szeiler
Member of the managing board of Raiffeisen Vermögensverwaltungsbank AG

Due to the debt crisis, many wealthy investors have focused strongly on precious metals, real estate and foreign currencies, such as the Swiss franc, or simply prefer to put their assets into savings. Due to the intense volatility on the equity markets, it is easy to lose sight of the importance of portfolio diversification.

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Gold, real estate, savings deposits and the like: What about diversification?

Due to the debt crisis, many wealthy investors have focused strongly on precious metals, real estate and foreign currencies, such as the Swiss franc, or simply prefer to put their assets into savings. Due to the intense volatility on the equity markets, it is easy to lose sight of the importance of portfolio diversification. History shows, however, that fleeing to what may look like a safe haven does not necessarily provide protection against losses.

In the USA, for example, ownership of gold and silver was prohibited by a law passed by President Franklin Roosevelt in 1933. Within 14 days, holdings of gold in excess of 5 ounces per person had to be exchanged for a cash payout of $20.67 per ounce. All safe deposit boxes were sealed prior to announcement of the law and were only opened again with a representative of the tax authorities present.
 
Caution must also be exercised with externally-financed real estate investments, as shown by the massive real estate crises in Japan, Switzerland and most recently in the USA. With cheap loans, investors are enticed into investing in real estate projects, but as interest rates rise these projects sometimes become unprofitable and it is often impossible to attain the desired prices in a fire sale. Furthermore, real estate is by definition immoveable property and can be taxed at will by the state.
 
As a safe haven currency, the Swiss franc will only be a suitable investment as long as Switzerland’s export businesses can handle the exchange rate. The Swiss National Bank has already resorted to interventions on the FX market to weaken the franc and prevent a recession.
 
Due to the rock-bottom interest rates, savings deposits also offer little protection against inflation, and here again the ultimate security of these investments depends on the state, which guarantees them.
 
So, where’s the safe haven? Diversification!
During times when one must expect the unexpected, it is especially important to stick with a broadly diversified, flexible portfolio to help preserve and protect assets. Gold, real estate, savings deposits and foreign currencies all have a role to play, but it is important not to forget equities, which are currently viewed with a considerable scepticism, even though this asset class has provided protection against inflation for many decades.
 
With equity investments, it is important not to pay too much attention to daily fluctuations in share prices: more important aspects include solid corporate value, patents, a qualified workforce, good management and strong markets. Keeping this in mind, companies with solid balance sheets, strong cashflow and robust dividends are a key component of any balance investment portfolio during crisis periods as well and are thus included in the products offered by Raiffeisen Vermögensverwaltung.


Ingrid Szeiler
Board Member of Raiffeisen Vermögensverwaltungsbank AG, 
16 December 2011

 

Country: Österreich
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