Investment magic triangle
The magic triangle of investment (including magic triangle of investment ) is the in the investment among themselves competing goals profitability , safety and liquidity . The three goals are symbolized by the corner points of the triangle.
Explanation of the terms
- Security : In this context, security means the preservation of assets. Security can be achieved, for example, by spreading the assets ( diversification ).
- Liquidity (also availability ): The liquidity of a system expresses how quickly an amount invested in this system can be converted back into cash or bank balances or how high the (penalty) costs resulting from the conversion are. The shorter this conversion period, the more liquid the investment is.
- Profitability (also return ): Profitability describes the return that results from an investment in a system. Income can be achieved, for example, through dividend, interest payments, increases in value (price changes) or other distributions.
Interdependence of goals
The triangle is intended to clearly show that only two of the three goals can be achieved or that a third one has to be neglected when the focus is on two goals.
- Investments with high security and high liquidity or quick availability are not very profitable.
- Investments with high profitability and high security are not liquid or quickly available.
- Investments with high profitability and quick availability are risky or have a low level of security.
Examples
- High security, high liquidity, low profitability:
Savings books without a time limit and overnight money accounts are usually protected by a deposit protection fund and therefore have a high level of security. In addition, they are available daily and therefore quickly, so they also have high liquidity. Since the bank's assets is a non-fixed period available, this can only partially so do business and therefore provide only a low rate of return.
- High security, low liquidity, high profitability:
long-term bonds and savings contracts are usually also covered by a deposit protection fund (high security) and, in contrast to overnight money accounts, for example, are available to the bank for a longer period of time (low liquidity). This enables the bank to act economically over a longer period of time and it can give higher returns on the assets.
- Low security, high liquidity, high profitability:
stocks or options can be traded daily (high liquidity) and can have high profitability. For example, the risk of price fluctuations ( market risk ) or the issuer risk significantly reduce the security of these investments.
Magical square
If you add social or ecological criteria as a further class, the magical square of investments is created . Such an investment is called a sustainable or ethical investment . In addition to the conflict of goals between return, risk and liquidity, a conflict with ethical criteria can also arise here; however, most studies conclude that investments that take ethical criteria into account do not perform worse.
Individual evidence
- ↑ "Magical Triangle": the ideal trio for a successful investment. In: ing-diba.de. ING-DiBa AG, May 21, 2013, accessed on March 27, 2016 .
- ↑ Miriam von Wallis and Christian Klein: Ethical requirement and financial interest: a literature review on socially responsible investing . In: Business Research . tape 8 , no. 1 , August 2015, p. 61–98 , doi : 10.1007 / s40685-014-0015-7 (review article, Open Access).