How Do I Organise my Private Asset Management? – Organisation, Digital Tools and Networks

Introduction

Contrary to popular opinion, most millionaires do not have asset managers or Family Offices to take care of their assets. They take care of them themselves. However, the challenges of keeping an eye on all assets, carrying out meaningful analyses, developing an investment strategy or accessing interesting investment opportunities clearly have an impact on all wealthy people, even „poor millionaires“ with assets of „just&“ seven figures.

Sometimes these individuals receive good, comprehensive advice regarding the general state of their assets and their individual goals. However, the finance industry is also made up of those looking to sell products targeted at individual asset classes, whether these be shares in companies, equity funds or property investments – and their interests may not lie in providing general advice, but rather in selling a set of pre-existing products.

Financial institutions (banks, securities trading companies, etc.) liable under MiFiD II are always required to consider the general state of their client‘;s assets prior to making a recommendation. But often, either the adviser has little interest in analysing the client’s overall assets or the client is reluctant to reveal the full extent of their assets.

And this means that in reality many wealthy people often have to keep full knowledge of their asset portfolio to themselves and analyse their investments on their own.

However, organising your own assets in a sustainable and profitable way is no longer a trade secret. Instead, all that you need is an overview and diverse portfolio of investments, a combination of individual risk classes, sufficient liquidity, cost awareness and a steady hand. And those (lucky few) affected also need to have the open-mindedness and time to want to manage these issues themselves.

Asset Overview

For every investment decision, you need to take stock of your assets. How is my wealth divided across property, shares in companies, gold, securities, cash, etc. („asset allocation&“)? Most millionaires will have some idea of this in their minds, but only very few write it down accurately. But even then, most come nowhere near getting a professional overview in the way that a company manages its accounts.

Without knowing the allocation of funds from the start, incorrect decisions can be made and assets lost. At the very least, you miss out on the optimum ratio between yield and risk.

This is why we recommend building a portfolio across a range of key assets, which may also include art, vintage cars or boats. A simple Excel table is often enough. However, nowadays there are a number of supporting apps and programs that simplify drawing up asset summaries and that, alongside tracking bank data, even make it possible to evaluate individual assets (property evaluation, market value of shares, gold or bitcoin) and adjust them accordingly. Of course, all of this information can be accessed anywhere and at any time.

The software also makes it easier to check whether your pension savings plan contains enough bonds or shares, or to see that further property investments might not be so wise when 70% of your wealth is already divided across your own home, holiday property and apartment buildings.

Analysis and Projections

Many people find it difficult enough drawing up a precise overview of their assets, but most give up completely when it comes to calculating an annual return or an increase in value of their total assets. For some securities portfolios, a bank may already do this. But who has the information to hand about the value of property developments, insurance contracts, cars or closed assets? Even for professional advisers this might not be possible, as reliable market prices for illiquid assets are not always available. Property owners are often caught out here, by comparing property prices against their purchase price every year. Their rough calculations often miss out ancillary costs or, above all, the number of years that have passed since purchase – as the value increase needs to be divided by this number to determine the annual increase. A rise in value of +40% doesn‘;t seem quite so impressive when spread over 10 years.

For those who are less familiar with asset management, we recommend looking for support from service providers, such as financial planners, fee consultants, specialised advisers in bank or family offices – or even from Google.

With tools we mentioned above and a little effort, you can work towards a better understanding of the numbers involved and prepare yourself for taking the next step.

Asset Allocation and Investment Strategy

Assets are there to make life easier and not the other way around. Everyone will have their own goals and risk thresholds. But what everyone has in common is that they all want to earn the highest return at the lowest risk, while staying solvent. As always, the devil is in the detail. It is therefore always worthwhile thinking about how much cash will be needed in the years ahead and how much money should be set aside for longer term or riskier investments. From this, you can establish goals for your asset allocation and an investment strategy to achieve the best result. Here, taking a few particular steps can often have a great impact, such as reallocating expensive funds to more cost effective ETFs (article in the Süddeutsche Zeitung) or selling tenanted apartments (possibly at good sales prices at the moment – page 52 ff. in the Bundesbank analysis) in favour of a better cash reserve.

Studies on this topic show that asset allocation is more important for longer term wealth success than individual investment choices. For example, the choice between a share in Apple and a share in Siemens share not as relevant as that between the allocating assets to property, private equity, cash or securities.

But opinions are divided as to just what optimal allocation looks like, and the answer is of course different from person to person. At this point, we can only make two definite statements.

First: The once much cited standard breakdown into 60% bonds and 40% shares is only true, if at all, for the liquid assets and that this approach was already quite outdated some years ago.

Second: The reality of asset allocation is much more complex and tends to be determined partly by chance and partly by differences in living situations. Inherited property, for example, is not a specific allocation decision, but may offer an individual the stroke of luck needed to change the course of their life.

Without drawing on a single scientific approach, perhaps the statistical average of users of the wealth app OWNLY, which is mainly used by wealthy private individuals, can give a first impression how asset management works in reality. It is hardly surprising that the asset class of „property“ accounts for more than half (57.6%) of the assets. But the fact that cars (4.8%) surpass the total value of securities (4.6%) does give us pause for thought. On a positive note, the diversification of assets held by the OWNLY users includes all major asset classes (property, raw materials (gold), shares in companies (PE, VC), cash, luxury goods and securities accounts) (Source: W&Z FinTech GmbH, Statistics OWNLY Users 8/2018).

Implementation and Transactions

If there are major differences between the current state of asset allocation and our target asset allocation, then this means that changes need to be made. If 80% of assets are in an inherited owner-occupied home, reallocation is obviously not as easy as a solution as those available for someone with 80% in cash holdings. But there are also solutions for the first case. Usually there is enough room for manoeuvre within individual asset classes, meaning that optimisation is possible over time. Even if this means choosing to invest future cash income, whether from bonuses or inheritances, in a more targeted way.

It is possible to buy and sell securities from banks, direct banks or new digital platforms. But the main thing to remember here is to take transaction costs into account. These have now become transparent via a range of comparison platforms. And you should make sure to use them.

In addition to the ETFs mentioned earlier, so-called Robo Advisers (overview and test results) also offer interesting options for liquid asset allocations, because they offer an almost all-round care-free package for securities investments in the form of an asset management service and you only have to worry about identifying a suitable personal investment strategy.

For illiquid assets such as property or closed funds, the prospects are a little more difficult. Here, it is highly recommended to look out for the right companies that have in-depth knowledge of the relevant markets, as well as proven reputation and reliability. The private equity market follows different rules than the property sector. So don‘;t trust a consultant who claims to be able to do everything.

Ongoing Review and Relevant Market and Product Information

Once the first steps have been taken, you have to keep at it. In other words, you have to filter relevant market information („Is a property crash imminent?“, „Will the technology bubble burst?“, etc.) and check whether you are still following the right strategy and whether your investments are developing in line with your expectations. Sometimes personal circumstances also change, for example because a large sum of cash might suddenly be needed for a round-the-world trip or a new expensive hobby.

Stop Loss signals have proved worthwhile in securities investments; they can inform you if shares fall in price beyond a certain threshold, for example. The same principle can be used with any investment where market price information is freely available. The advantage here is that the software does not have the power to trigger an automatic signal for purchase or sale. The algorithms simply provide you with information when an asset class requires your attention.

The above-mentioned tools/programs can also be very helpful for this. It is important that you define your own triggers based on when and how you need to be informed or warned.

Taxes

If Germans grumble about anything, it‘;s paying tax. Otherwise, tax saving models and advisers („Konz – 1,000 Legal Tax Tricks“, etc.) would not be so successful. Of course, we should all be aware of key factors that affect tax (allowances for gifts and inheritance, tax rates, deadlines, etc.). But nobody ever got rich on tax savings alone. Here, it is usually sufficient to consult a trusted tax adviser once a year with your own asset planning schedule to avoid major errors. But don’t chase after every possible tax-saving opportunity (Article). You should not make the success of your assets dependent on amendments to tax legislation.

Special Subjects: Asset Transfer, Inheritance, Liquidation

When it is time to consider special subjects, such as transferring assets, we, as a digitally oriented company, also recommend consulting good advisers. Although algorithms can calculate, forecast and implement a lot nowadays, today‘;s robos cannot yet deal with subtle nuance, emotional considerations and diverse material factors (see article Robo Advice 4.0).

Summary

For your private asset management, you can make use of a broad infrastructure of digital advisers and consultants with whom you can answer key questions and carry out analyses. Asset overview, analysis, strategy, transactions and ongoing monitoring are easily achievable for everyone, even without a family office

Make the most of the opportunities offered by new technology and supplement their advice with the opinions of trusted consultants. Nothing should stand in the way of your wealth flourishing.

Do you have any questions about the article?

Write to us at: contact@ownly.de.