What Should I Invest

Maybe you know that. As an investor, you sometimes have to justify in discussions why you save and invest so much at all. Especially in nice societies that live mainly from hand to mouth, that happened to me at least once or twice. If this seems familiar to you and you sometimes run out of arguments, here are seven smart reasons why it is absolutely smart and farsighted to invest. Or why everyone should invest.

The first reason starts with the importance of the financial perse. In the life of everyone, finances simply belong to it and as an investor you are forced to deal with your money at all times. To this belongs on the one hand that one first becomes aware of what one gets in monthly in money and then spends again. You become more or less aware of your overall financial situation. Even if you can do that with certainty, if you are not an investor, this is inevitably part of being an investor at a high level. Quite a positive side effect.

One thinks about one’s finances closely linked to this is further thinking about one’s finances. Many investors draw up very concrete budgets for their financial life, which ultimately enables them to keep their finances under control, to save and to invest. In addition, thinking about one’s own finances often leads to thinking about one’s life goals and financial goals. Which, by the way, is also our next sub-item.

You become aware of your financial goals. Financial goals are a very important aspect in the life of an investor. We all save and invest to achieve something. Be it to make the best out of our money, or to achieve an additional income, or, or, or. There are virtually no limits to your own creativity here.

In my opinion, the definition of financial goals does not only lead to a more structured handling of money, but also makes life easier. Because if the finances are clearly regulated and aligned to the life goals, this can lead sooner or later to greater satisfaction.

You are taking care of the retirement before a very important reason, if not the most important one, could be the following: As an investor, you effectively provide for a comfortable retirement. I suppose we all paint a picture book-like time after work every now and then in which we can do everything we didn’t have time for before.

Whether world trip, expensive hobbies, or whatever. Here, too, there are hardly any limits to the imagination. However, anyone who relies on the statutory pension alone could be more likely to face a time of savings and miserliness at retirement age. So it would be the right thing to do early enough and thus secure this potentially happy time from a financial point of view.

Securing one’s assets against inflation. Another reason that definitely speaks in favour of investing is hedging. It may sound absurd to many eager savers and savings book fanatics, but with a long and broad investment approach equities may even be safer than these fixed-income products in the current low-interest phase. Inflation is consistently eating up the purchasing power of financial assets and the bottom line is that assets are effectively losing value from year to year.

However, those who invest their money in equities invest in genuine, productive assets and thus not only protect their money against this purchasing power destroyer. No, he also increases his assets and will very probably have more of his savings in a few years’ time. A further aspect, which is applied to the discussion of one’s own finances, is the following:

A fundamental prerequisite for investing is, as you can imagine with certainty, saving. And this presupposes that you sometimes limit yourself and refrain from unnecessary consumption. Or in other words: from life from hand to mouth to the fullest. Many people are likely to spend money on things that they don’t really need and that don’t make them happier. The renunciation of these things could, however, make up a fortune over long periods of time.

One leads a financially self-determined life This last aspect could also gain some weight argumentatively. At least it means a lot to me. Who invests, leads in my opinion a financially largest possible self-determined life. Because just the investing stands in my eyes for the living out of an interesting possibility, in order to let work its money effectively for itself and to get the best out for itself.

But not only that, because the potential freedoms go much further: Because apart from this free selection component one can, if one saves diligently and invests eagerly, even at some point reach the great goal of financial freedom. And let’s be honest: There can’t be any more self-determination, can there? There are many good reasons …

As we have now seen, there are many good reasons why one should invest and why most people should let their money work for them. Surely you will be able to add some other reasons to this list. But if you’re going to have to justify yourself again in the near future, there are a lot of things you can say back now.

Who knows, you might even be able to do some real persuasion work. Admittedly, we are somewhat biased when we say that the investors and analysts at our Motley Fool offices are among the best in the world. But at least with their help, we have managed to consistently beat the market. Now we’ve asked our best people around the world for their tips on how anyone can become a better investor. Read their answers in our latest free special report. Click here to get your easy access to this report.

What an insurer’s investment manager should invest in

Von Karl Happe, chief investment strategist for insurance portfolios at Allianz Global Investors. Where do you get your returns from if you don’t steal them? This question is a long-running issue (not only) for insurance companies. A few investment tips.

Investment decisions do not become easier in the current market environment. Yields on German government bonds, for example, have returned to their recent lows. The credit spreads of other bonds have widened somewhat, but remain historically narrow.

At the same time, the political situation in Europe has been complicated since the elections in Italy and potential trade conflicts with the USA are weighing on the stock markets. Insurance companies now only have limited solvency capital left to take on more risk in their portfolios – for example in the form of investments in alternatives. So what should an insurance investment manager do with his portfolio?

Discrepancy between the maturity of assets and liabilities

Many insurers have already taken extensive measures to reduce asset-liability duration mismatches – the discrepancy between the maturities of assets and liabilities – and to eliminate major liquidity gaps in their liability structure. For many insurers, the largest contribution of the Solvency Capital Requirement (SCR) now comes from credit spread risks. The main problem is therefore often to invest the risk capital in the right mix of capital market risks.

Despite the recent spread widening on the bond markets, the feeling still prevails that the risk capital budget has invested too heavily in the areas of maturities and interest premiums and has diversified too little into other risks. Given the high risk capital requirements for equities and the operational complexity of alternatives and real estate, many insurers are structurally underinvested in these asset classes.

We believe that a disciplined investment approach and the use of targeted strategies to maximise the return on solvency capital still offer a number of options. To free up SCR risk capital, we propose firstly to reduce the duration of the corporate loan portfolio and take advantage of the currently higher spreads in the shorter maturities to generate returns.

Second, in order to maintain maturity congruence and cash flow stability on the liability side while maximizing returns, bond insurers should focus on local or near sovereign issuers that receive the same zero credit spread SCR burden as sovereign issuers.

Third, insurance companies should further develop their investments in private debt. Infrastructure and project finance, tailor-made securitised loans to small and medium-sized enterprises and real estate finance have many advantages: greater portfolio diversification, lucrative interest premiums, lower default risks and better asset-liability matching (ALM matching). Fourthly, insurers should use the released risk capital to buy risk-adjusted equities.