Home-backed investment vehicles that fueled the financial crisis are enjoying their best stretch in years

Associated press

  • Mortgage-backed securities have enjoyed a three-month winning streak after outperforming US Treasuries through November, Bloomberg reported Monday.
  • The increase is mainly due to lower refinancing rates and lower volatility in mortgage-backed assets. When more borrowers refinance loans with lower interest rates, securities lose their appeal against Treasuries.
  • The assets gained new fame in 2008 when subprime mortgage-backed securities fueled the housing market collapse of the year and the recession that followed. Those who bet against assets won millions and even billions when the housing bubble burst.
  • Visit the Business Insider homepage for more stories.

Mortgage-backed securities have enjoyed a three-month winning streak after outperforming US Treasuries through November, Bloomberg reported Monday.

This is now the longest consecutive monthly asset outperformance since the end of 2017. The excess return of the Bloomberg Barclays US Mortgage-Backed Securities Index over US Treasuries reached 19 points at the November close, raising cumulative total of 20 points, according to Bloomberg.

The assets gained new notoriety in 2008 after several subprime mortgage-backed securities fueled the housing market collapse that year. The small group of investors who gambled against home-backed assets benefited from the recession, with some of the short sellers highlighted in Michael Lewis’ bestselling book The Big Short.

The latest acceleration was supported by lower volatility and a lagging refinancing rate among homeowners. The index surged significantly in the first half of 2019 before stabilizing below its five-year moving average, according to Bloomberg. Lower volatility signals a decrease in homeowners’ chances of refinancing.

A surge in refinancing activity would reduce asset performance, as securities are currently trading at a premium. When homeowners refinance their mortgage loans at lower rates, paying off the principal prematurely lowers the value of mortgage-backed securities.

Refinancing activity has already declined moderately over the past three months, down 4% since late August according to Bloomberg. A forthcoming November prepayments report is expected to show an 11% drop in the month, Bloomberg added, signaling continued strength as fewer borrowers rush to repay their loans.

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Exchange Traded Funds Gain Ground as Investment Vehicles

Exchange Traded Funds (ETFs) are gaining ground as investment vehicles, given their low cost structure and the better returns of actively managed programs. Over the past five years, assets under management (AUM) of ETF schemes have grown more than 30-fold to reach Rs 1.47 trillion. While ETFs still only represent a small fraction of total assets, market participants say the share of passive investment vehicles will only grow in the years to come. In addition, the market is expected to grow as more and more programs are launched in the debt segment. In some developed countries, debt ETFs represent a larger share of the total ETF market. In India at present it is only 2%. On the equity side, experts say investors may increasingly prefer ETFs over actively large-cap programs, as the performance dashboard in recent years has favored the former.


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First published: Tue 19 November 2019 01:32 IST


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Pooled investment vehicles: definition and types

What is a mutualized investment vehicle?

A common investment vehicle is a way to put your money on the stock market alongside other investors. There are several ways you can pool money if you are looking for an alternative to individual stock trading. Some are better known than others and they each have their advantages and disadvantages. As you shape your portfolio and pursue your investment objectives, think about what joint investments could do for you.

What is a mutualized investment vehicle?

Generally speaking, a mutualised investment vehicle is a vehicle in which several investors participate. Each investor adds money to the pool to buy shares of the investment. Basically this is a large portfolio funded by multiple investors. Returns are made in the form of dividend or interest distributions and / or price appreciation as the price per share of the investment increases.

Joint investments are supervised by a management team. This team makes decisions on which securities to buy or sell as part of the investment. In exchange, investors pay a expense rate to hold the investment. This expense ratio reflects the cost of owning the fund on an annual basis.

You can buy pooled investments through a taxable brokerage account or via a tax-efficient account, such as that of your employer 401 (k) plan or individual retirement account. If you are investing through an employer-sponsored plan, your range of investment options will be determined by the plan administrator. If you are investing through an IRA or taxable account, the fund choices are dictated by the brokerage that holds your account.

Types of pooled investments

What is a mutualized investment vehicle?

What is a mutualized investment vehicle?

There are several avenues you can take to pool your investment dollars. You may be more familiar with some than others.

1. Mutual funds

Mutual fund are a type of open-ended investment that can include stocks, mutual funds, bonds, or other investments. a open fund means that the company that owns the fund can create new shares on demand to sell them to investors. When an investor owns their shares, the fund can redeem them.

A mutual fund can be actively or passively managed. An actively managed fund means that the fund manager actively makes decisions about which investments to buy or sell within the fund. Passive funds can track an index, such as the S&P 500 or the Nasdaq, and try to match its performance. These funds generally have a lower expense ratio than actively managed funds.

2. Exchange traded funds (ETFs)

a exchange-traded funds (ETFs) combines the characteristics of a mutual fund and a stock. On the fund side, ETFs hold a collection of investments. This can include stocks, bonds, real estate, and commodities. What’s different is that even though mutual funds are priced once a day when markets close, ETFs trade throughout the day on an exchange just like a stock.

ETFs can also be managed actively or passively. Compared to mutual funds, active and passive ETFs tend to have lower expense ratios. Passively managed ETFs can also be more tax efficient because the fund holdings are renewed less often. This translates into fewer capital gains tax events for investors.

3. Hedge funds

A hedge funds is a collective investment vehicle managed by a registered fund manager or investment adviser. The fund manager is responsible for using investor funds to buy and sell investments, according to a defined strategy. For example, there are hedge funds that are fund of funds, others that invest exclusively in emerging markets, and others that focus solely on real estate.

Hedge funds can offer diversification because hedge fund managers can pursue investment strategies that may not be an option with mutual funds or ETFs. The downside is that they can be more expensive when it comes to fees. They can also be less liquid, potentially making it harder to sell stocks if necessary.

4. Closed-end funds

Closed funds work the opposite of open funds. With this type of fund, the number of shares available to investors is limited. These funds are most often associated with an initial public offering (IPO) when a company first offers stocks on the open market. It is a way for startups to raise capital to finance their future growth.

A closed-end fund could generate better returns than an open-end fund if the company performs well. The downside is that they can also be more volatile, and it can be difficult to calculate an accurate estimate of the true value of a business.

5. Real estate investment funds (REITs)

A real estate investment trust or REIT is a way for investors to own real estate without actually owning it. A REIT company buys properties to invest in and then you buy shares of the REIT. These types of bundled investments can hold a wide range of property types including hotels and resorts, public storage units, commercial office buildings, apartments, and single family homes.

Besides not having to deal with the headaches of being an owner, REITs can also offer income in the form of dividends and hedge against stock market volatility. You also get some of the tax benefits of owning real estate, such as depreciation.

6. Unit Investment Trusts (UIT)

A mutual fund (UIT) is something you might not have heard of, but it falls under the category of joint investment. An ITU is a company that purchases stocks, bonds and other securities and then offers them to investors in the form of redeemable units. ITUs differ from open-ended or closed-end mutual funds in that they have an expiration date. Once this date is reached, the ITU is dissolved and the assets are distributed among the investors in proportion to their share of ownership.

Advantages and disadvantages of mutualized investment vehicles

What is a mutualized investment vehicle?

What is a mutualized investment vehicle?

Investing in mutual funds, REITs, or UITs can offer many benefits. Diversification is a no-brainer, because owning a common investment can give you exposure to multiple asset classes and sectors in one vehicle. The more diversified you are, the better equipped you are to manage your portfolio risk.

Pooled investments can also be more convenient and accessible, compared to investing in individual stocks. Typically, employer-sponsored pension plans don’t allow you to buy individual stocks, but you may be able to invest in those same stocks through a mutual fund or ETF. A common investment vehicle also offers investors the opportunity to invest in opportunities that are generally only available to large-scale investors. Buying a mutual fund through a brokerage account can also be an easier way to focus on a particular industry.

Buying and holding pooled investments can also be more profitable compared to commercial actions. Brokerage accounts may charge commission fees for transactions, so frequent buying and selling could eat into your returns.

Generally speaking, the downsides to watch out for with joint investments include volatility and liquidity risk. Some types of pooled investments are more liquid than others, which you need to be aware of if you don’t want to tie up a large amount of money in one place. Individual investments can also be more volatile than others, depending on their underlying holdings.

The bottom line

Pooled investment vehicles can take different forms and some may be more attractive than others. Checking the performance, fees, risk ratio and underlying holdings of any common investment vehicle is essential to determine whether to buy. With a little research, you may be able to diversify your portfolio and achieve your goals in no time.

Advice to investors

  • Remember to take a fund’s tax profile into account when investing. For example, a passively managed ETF that has less capital gains events might be better suited to your taxable brokerage account, while actively managed funds might be better kept in your IRA or 401 (k). The goal is to manage your investments with tax efficiency so that you can potentially minimize the amount of tax you owe on earnings over time.

  • Consider speaking with a financial advisor about the benefits of pooled investment vehicles. Find the right financial advisor who adapts to your needs doesn’t have to be difficult. The free tool of SmartAsset connects you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors who will help you reach your financial goals, start now.

Photo credit: © iStock.com / woraput, © iStock.com / golero, © iStock.com / claffra

The post office Mutualised investment vehicles: definition and types appeared first on SmartAsset Blog.


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Blue-chip investment vehicles struggle to beat market returns

The share prices of LICs, on the other hand, will depend on the demand for their shares. This means that their stock prices may move away from the value of LICs’ investment portfolios.

Total returns from an LIC, like any other listed company, are measured by the share price between two points in time, plus dividends. PFRs, in their reports, tend to focus on the performance of their investment portfolios.

Mr Brycki, who is an advocate for low-cost index ETFs, said the appropriate measure of an LIC’s performance is the change in its stock price, plus dividends, as shareholders cannot directly access the performance of their LIC’s investment portfolios.

Max Newnham, Director of TaxBiz Australia and a chartered accountant specializing in tax planning, pensions, SMSF and portfolio building, said there is no point in investing in an active manager if he does not not beat the market.

“I would be hard pressed to find a place in any portfolio for an LIC unless it could beat an index fund,” Mr. Newnham said.

“At the end of the day, it’s the scorecard runs that count and when you look at the traditional PFR scorecard, over a longer period of time they don’t do as well,” he said.

As a corporate structure, PFRs can adjust the share of their profits paid to shareholders in the form of dividends.

And a key part of the large LICs’ investment proposition is to pay fully paid dividends which, over time, increase faster than inflation. This can be particularly valuable for investors who live off their savings.

A spokesperson for the Australian Listed Investment Companies Association, which represents seven major LICs, including AFIC, Argo and Milton, said that while the valuation of the portfolio and the stock prices of LICs fluctuate, in the long run, the portfolio of LICs fluctuates. investment and dividend performance prevail. .

“In the very long term, we tend to outperform the index and index ETFs,” said the spokesperson.

The spokesperson also pointed to the differences in taxation and management fees and questioned whether Mr Brycki’s analysis compared comparable investments.


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How to navigate among the many investment vehicles

“You have to be in it to win,” as the popular saying goes, but your financial future doesn’t have to be a gamble. Just as you should go to a doctor to take care of your physical needs, so should the health of your savings.

It is imperative to consult an independent financial advisor to help you reach your savings goals. The Southern African Financial Intermediaries Association (FIA) maintains that financial advisers are important, given the complex nature of investment and risk products. This makes it “difficult for a consumer to structure a product portfolio that meets all of their needs.

“A good financial advisor will take a complete picture of your financial needs and help you structure a portfolio of investment and risk products that matches your income and stage in your life. A financial advisor can offer valuable advice when critical financial decisions need to be made and often deters clients from making reckless decisions with costly consequences, ”says the FIA.

The abundance of content and overwhelming media coverage in the public domain about the investment options available blurs the water for the layman, making it very difficult to get started. But a licensed (with the Financial Services Conduct Authority) and qualified practitioner will help you navigate the maze of product choices and answer all of your questions, including: should I invest in an exchange-traded fund (ETF) or an unit trust? Should I consider investing in the money market or sticking with a Tax-Free Savings Account (TFSA)? Which retirement product should I choose? Where is offshore investment located? Should investors be exposed to all options or stick to one or two? What about the property? How does it all fit together?

If you think it’s just a matter of finding the best performer, that’s a mistake. For example, some published performance charts on mutual funds look at, say, five-year return numbers and many investors then choose to invest in a mutual fund, based on this fact – without considering what the underlying investments are or objectively considering whether the perceived high returns are likely to continue. Other investors think that “anything other than money in the bank is just ‘too risky'” and prefer money market investment options. It just doesn’t make sense to look at the individual products in your portfolio in isolation.

This is where the advice of an advisor becomes invaluable. A good place to start is for you and your planner to take stock of your financial situation. Evaluate your goals and what the future might hold for you, and consider your experience and attitudes. Next, identify the money available. The process by which you collect this information is called “fact finding” – this allows you to be more prepared to put together your future financial plan.

The next phase is to determine the time horizon of your investment. You have to think about how long you have to get your money back. Time frames vary for different purposes and will affect the type of risks you can take. For example, if you are saving for a real estate deposit and hope to buy in a few years, investments such as local equity funds or offshore portfolios will not be suitable as their value goes up or down and is considered a longer investment. -term. Stick to cash savings accounts like money market funds or even a TFSA. If you’re saving for retirement in 25 years, you can ignore short-term drops in the value of your investments and focus on the long term. Over the long term, retirement products, real estate investments, or collective investments other than cash savings accounts tend to give you a better chance of beating inflation and reaching your retirement goal.

Once you’ve clearly defined your needs and goals – and assessed the level of risk you can take – develop an investment plan. This will help you identify the types of products that might be right for you. Your advisor will help you understand what is available and what the role of each product is in your overall savings strategy.

Here are some of the options:

  • SICAV: You can invest in mutual funds for most of your financial goals, from saving for your long-term needs to achieving your short-term goals. You can access your money anytime and make changes to your investment whenever you need to, with no transaction fees or penalties.
  • AND F : You can trade index funds like stocks, which offer the advantage that ETFs are more liquid. They can be bought or sold at any time during trading hours and are accessible to small investors as they allow the purchase of individual stocks or portions of indices in fractional installments, while many investment trusts have minimum investment requirements.
  • Money market funds: These vehicles invest in short-term instruments with a maturity of less than one year. By keeping the deadline short, these funds attempt to reduce risk and provide liquidity.
  • Retirement products: When investing for retirement, you usually have three main options: a pension fund, a provident fund, or a retirement annuity. All benefit from some form of tax advantage and are only accessible after retirement, so this investment is long term.
  • TFSA: The new kid on the block is exempt from income tax, dividend tax or capital gains tax on returns. You can only contribute a maximum of 33,000 Rand per tax year (annual limit). There is a lifetime contribution limit of R500,000 per person.
  • Offshore portfolios: The first option is to invest directly abroad in funds domiciled abroad. When you invest in such funds, you need to convert your rand into the currency of your choice. To withdraw the money abroad, you will use your annual discretionary allowance or be able to request a tax clearance for an amount of up to R10 million.
    The second option is to invest indirectly abroad in funds denominated in rand. These funds are mandated to invest in foreign assets. You invest in rand, after which the mutual fund management company then converts the rand into foreign currency, using its foreign exchange capacity. All funds denominated in rand are valued in rand.
    You can also invest in offshore equity portfolios which are managed and reported locally or through endowments.
  • Goods (whether real buildings or classified entities): buying a property goes far beyond the simple brick and mortar. You can invest in real estate ETFs or mutual funds, put your money in real estate investment funds (REITs), or buy stocks in a real estate company. You can even buy a physical property and upgrade it for resale or buy a building and rent it by the square meter, here or abroad.

This list is long and we can delve into the intricacies of each asset class. This is proof that you need a financial advisor to unpack all this properly, and ensure that your nest egg is sufficiently diversified. The importance of managing and improving the balance between risk and return cannot be overstated enough, by spreading your money across different types and sectors of investment whose prices do not necessarily move in the same direction. This can help you smooth out returns while achieving growth and lower your overall portfolio risk, so that one day you can retire in the style you’re used to.


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Luxembourg collective investment undertakings: legal regime and characteristics in brief – Finance and Banking

Luxembourg: Luxembourg collective investment undertakings: legal regime and characteristics in brief

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TYPES OF COLLECTIVE INVESTMENT VEHICLES AVAILABLE IN LUXEMBOURG

UCITS

means Undertakings for Collective Investment in Transferable Securities and refers to investment funds which have been set up in accordance with the provisions of the amended Luxembourg law of December 17, 2010 transposing EU Directive 2009/65 / EC (“UCI Law”). UCITS benefit from a European passport insofar as, once authorized by the Luxembourg supervisory authority, they can, according to a standardized notification procedure, be sold to the public in all other EU Member States. UCITS also benefit from registration facilities with the authorities of many non-EU member states which recognize the UCITS label and the investor protection regime it entails. In order to protect the retail investors to whom UCITS may be marketed, UCITS are subject to specific rules concerning the assets in which they may invest and the diversification and concentration rules with which they must comply. These aim to ensure an appropriate liquidity of the investment portfolio of the UCITS allowing investors to redeem their units at least twice a month.

PART II FUND

refers to collective investment undertakings governed by Part II of the Law on UCIs, which are not qualified as UCITS either because of their investment policy or because of the rules applicable to the distribution of their units / shares . Although Part II funds can be sold to the public, they do not have access to the UCITS passport. They will however benefit from the AIFMD passport.1 under certain conditions. They are subject to the permanent supervision of the Luxembourg supervisory authority (“CSSF”). However, they have greater flexibility as to the type of assets in which they can invest, the investment strategies they can implement, the diversification rules to which they are subject and the liquidity they offer. to investors.

SIF

refers to the Specialized Investment Funds organized under the amended Luxembourg Law of 13 February 2007 (“SIF Law”). SIFs are reserved for so-called informed investors, ie essentially institutional investors, professional investors and investors subscribing for a minimum amount of 125,000 euros. They are subject to permanent control by the CSSF. Due to the sophistication of their investors, they benefit from a fairly flexible regime. Among other things, SIFs must invest according to the principles of risk spreading, but also have complete flexibility as to the type of assets in which they invest and the strategies they employ. Like Part II funds, they will also benefit from the AIFMD passport under certain conditions.

SICAR

means Venture Capital Investment Companies governed by the amended Luxembourg law of June 15, 2004 (“SICAR Law”). SICARs operate under a regime adapted to private equity / risk capital investments, including tax treatment different from that applicable to UCITS, Part II funds and SIFs. SICARs are not required to operate on the principle of risk spreading. They are reserved for informed investors and are subject to the control of the CSSF in the same way as the SIFs. SICARs will also benefit, under certain conditions, from the AIFMD passport.

SV

means Securitization vehicles organized under the amended Luxembourg law of 22 March 2004 on securitization (“2004 law on securitization”). They can be used in certain circumstances as an alternative to the investment vehicles mentioned above or in addition to the investment structure, in particular depending on the objectives of the operation and the way in which it is structured. Securitization vehicles can be offered to all types of investors, but those which issue securities to the public on a continuous basis come under the supervision of the CSSF. SV will not be subject to the AIFMD regime when it is qualified as “special purpose securitization entities” within the meaning of the latter.2 A new securitization regime reflecting the requirements of Regulation (EU) 2017/2402 on securitizations (“RS”) has applied since January 1, 2019. Three different securitization regimes are therefore available in Luxembourg: (i) the general regime RS for all securitizations that meet the criteria set out in the definition of securitization provided in the RS, (ii) the specific RS regime provided for securitizations classified as simple, transparent and standardized (STS) under the RS, and ( iii) the Luxembourg securitization regime for securitizations other than (i) and (ii).

To view the full article, please click here.

Footnotes

1 AIFMD passport means the EU passport introduced by Directive 2011/61 / EU on managers of alternative investment funds (“AIFMD”) for the marketing of alternative investment funds (“AIF”) to investors EU professionals, as implemented in Luxembourg Domestic laws.

2 Special purpose securitization entities are defined in Article 4 (a) of the AIFMD.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

POPULAR ARTICLES ON: Finance and Banque du Luxembourg


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Investment vehicles – Guide at every stage of life

By the time you enter the workforce and start making money, you should already start thinking about where and how to maximize your investment vehicles. Whether you’re a freelance writer, full-time employee, or business owner, making your first investment can get you closer to your financial goals.

There are many investment vehicles to choose from, such as stocks and bonds, real estate, ULV insurance, mutual funds, and many more. For many people, creating an effective investment strategy can be overwhelming. Some want quick returns and forget that there is a life ahead of them to run their investments and other resources, while others are content with having bank accounts that make little or no profit.

Mohnish Pabrai Q&A: invest like an owner and make mistakes

Mohnish PabraiIn May, value investor Mohnish Pabrai participated in a question-and-answer session with MBA students from London Business School, who interviewed the investor on many different topics, including his experience in managing his own business in the 1990s. Letters, lectures and the like on second quarter 2021 hedge funds Owning a business and being an investor Pabrai told his Read more

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Q4 hedge fund letters, conference, scoops, etc.

But when it comes to investing, it’s not about where to invest your money, but which investment vehicles are right for your financial situation and personal goals.

Before investing: Factors to consider

The key to becoming a smart investor is to match your resources, requirements and priorities for a particular period or stage in your life. This means that your investment decisions will need to be based on several factors including your monthly income, assets, expenses, financial goals, and risk appetite for investing, among others.

Since investing can take a huge chunk of your finances, you need to check your cash flow. Do you have a regular office job or a thriving business that provides you with a steady source of income? With the income you get, do you still have excess cash left that you can use to invest? It is important to ask these questions because they allow you to set appropriate expectations regarding your financial responsibility as an investor.

It is also advisable to take stock of your short-term financial situation. Ideally, you should have saved six months’ salary to help minimize the impact when your ability to earn – and therefore invest – is affected by economic factors or personal emergencies. It is simply not wise to get into investing when you are having financial problems, especially when there is no real guarantee that your return on investment (ROI) will be quick. The idea of ​​investing is to part with the money, which you can afford not to use or spend for months or years.

Your willingness to invest may also depend on how much you pay your billers to cover your monthly expenses, such as housing, education, transportation, food or groceries, etc. Apart from that, you also need to consider your lifestyle and personal expenses. If you spend more than what you earn, it is a red flag that you are not in a healthy financial situation and may not be ready to invest.

Here is an example of the recommended expense-to-income ratio for various types of expenses:

Lodging: 20% to 25% of your income

Transport: 15% to 25% of your income

Living allowance: 20% to 25 of your income

Debt payments: 5% to 10% of your income

Savings: 10% to 15% of your income

When it comes to your financial goals, you can tap into your investments to help you achieve those goals. If you are a new parent, some of your priority goals may be to buy a house, establish your child’s education fund, and make sure you have cash readily available in your bank account.

In this case, you would do well to place your assets in different investment vehicles. It helps you manage the risks involved in investing and hence gives you a better chance of achieving your goals as the money you have invested begins to grow.

Speaking of risk, this is another factor that you should consider when deciding to invest. Since almost all forms of investing involve risk, you need to consider whether you are open to the prospect of your investments depreciating at some point. This is called your risk appetite. If you are not too comfortable with the idea of ​​taking possible losses, then you will need to be careful with your investments. Consider lower risk investments.

Your timing for investment vehicles can also influence the level of risk you are willing to take. Generally speaking, your risk appetite decreases with age. If you start building your investment portfolio in your twenties, you will have more time to recover the money you might lose than if you choose to invest as you approach retirement.

In which investment vehicles to invest?

Once you have evaluated the various factors described above, the next step is to choose the right investment vehicle. This is one of the biggest dilemmas investors face, especially if you are just starting out. You might find the decision-making process easier if you first align your goals, and from there, compare the investment vehicles that might fit your timeline.

You are likely to set goals for the short, medium, and long term. Naturally, each of these will require investments aligned with a different set of factors, such as interest rates, liquidity period, and the overall value of your hard-earned money.

For short-term goals, the most common types of investments may include term deposits, liquid funds, or short-term debt funds. In the meantime, you can opt for balanced funds and equity-linked savings plans for your medium-term goals. Obviously, your long-term goals will give you the widest range of options, from stocks and bonds to real estate.

Indeed, investing your hard earned money is a major endeavor that requires a lot of homework, careful planning, projections, evaluating your options, etc., to make your money grow over time. In our featured infographic, we discuss more of the things you need to consider, so that you can get a clearer perspective on investing at any stage in your life.

Guide to investing at every stage of life

Guide to investing at every stage of life

Guide to investing at every stage of life

Guide to investing at every stage of life

Guide to investing at every stage of life

Guide to investing at every stage of life

Guide to investing at every stage of life

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By 2033, emerging technologies could combine to create new investment vehicles that will gradually replace stocks and bonds: Citi survey

NEW YORK–(COMMERCIAL THREAD) – The structural issues that challenge today’s capital markets could be addressed by creating a new type of registered investment token that embeds smart contracts into a blockchain harnessing artificial intelligence (AI) and big data technologies to administer contract terms and enforce various investor and issuer rights, Citi’s business advisory services find in their new survey, Industry Revolution – Investment Management in 2033, Part 1: The new building blocks. The new investment instruments, dubbed Ownits and Corpits, could change the fundamental concept of real asset ownership and the relationship between investors and companies, according to the survey’s findings.

Citi Business Advisory Services has partnered with Citi Ventures to solicit contributions from innovation leaders from large investment firms, venture capital organizations focused on fintech, a wide range of emerging companies, academics studying the new platform economy, and other experts focused on the intersection of investment management and emerging technologies. The report, based on 60 exclusive interviews – is part one in a two-part Revolution series – and introduces the new building blocks that can move stocks and bonds over time.

“The industry as a whole is facing a demographic challenge related to the growing needs of retired baby boomers, working millennials and the expanding global middle class. We are moving from a situation where the majority of assets are institutionally directed to one where an increasing share of assets come from individuals, ”said Sandy Kaul, global head of business advisory services. “A majority of this individual wealth is held by investors who do not have the right to access private investments, which limits their ability to obtain a return and diversification to help finance the extension of hope. of life.. “

The survey focuses on three innovation trends which together provide a model for dealing with this situation. Crowdfunding presents asset owners who choose to sell all or part of their assets to an outside entity. Unifying such investment opportunities divides these assets into pieces small enough that average investors can afford to buy and sell such exposures. Tokenization of these units then makes it possible to memorize the terms in contracts which can be divided into smaller and smaller fractions to facilitate liquidity.

“Behavioral changes and technological advancements such as blockchain and AI are accelerating and are irreversible, not only in the investment landscape, but across industries. It is by thinking about how new behaviors and technologies might come together that one can envision the possibility of entirely new solutions and gain a competitive advantage, ”notes Vanessa Colella, Head of Citi Ventures and Chief Innovation Officer. from Citi.

Citi’s investigation presents a framework for how these emerging technologies could be combined to create a digital token that combines financial rights, property rights, and use rights to create a new kind of liquid property unit. or “Property”.

“The appeal of Ownits is not just its regulatory transparency, but how it fits into the current ecosystem of primary issuance and secondary trading,” Kaul added. “This could allow individuals to create very diverse portfolios that cover not only stocks and bonds, but also art, infrastructure, wine, intellectual property rights and more.”

The report also exposes the case of a second type of registered token, extending the Ownit model to companies: these Corporate Exposure Units are nicknamed Corpits.

“There has been a significant drop in the number of listed companies over the past 20 years and in the total number of IPOs. Concerns about increased short-termism in public markets and access to nearly $ 1 trillion of dry powder in private equity markets are encouraging more companies to stay private, especially smaller companies that offer the greatest potential for growth, ”Kaul notes. “This limits opportunities for individual investors and makes it more difficult for employees of private companies to monetize their equity stake..

The types of smart contracts built into the envisioned Corpit would be different, according to the report. The financial measures taken by the company could be linked to the milestones of the growth plan or to the behaviors of a company in key areas such as environment, social and governance or diversity. Bonds are likely to extend to investors as well. For example, different categories of companies could specify different minimum holding periods – from daily to multi-year – and offer proportional variations in voting rights.

Companies could also be used to provide exposure to different elements within a company that are currently untargetable, such as their individual business units or their supply chain.

As the platform economy grows, the survey reveals that companies are embracing permeability. New business models such as crowdsourcing are taking hold in the company and intangible assets are becoming increasingly important sources of differentiation.

“By breaking down a company into a portfolio of investment options, we might see a blurring of the lines between venture capital, private equity and public market investing. This could allow a better construction of the portfolio and an explosion of new investment opportunities ”, concludes Kaul.

Citi, the world’s largest bank, has approximately 200 million accounts receivable and operates in more than 160 countries and jurisdictions. Citi provides consumers, businesses, governments and institutions with a wide range of financial products and services, including consumer banking and credit, business and investment banking, securities brokerage, wealth management and transaction services.

Additional information can be found at http://www.citigroup.com
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Seven smart investment vehicles to add to your holdings in 2018

Most investors know that a diversified portfolio spreads your risk and keeps your returns afloat if one of your investments goes down. The question then becomes: where are the best places to invest your money?

While the stock market offers many options for diversification, it is wise to look beyond Wall Street and find other investment vehicles with solid return potential. We asked members of Forbes Financial Council to share their thoughts on the best stocks to add to your portfolio. From cryptocurrency to health savings accounts, here’s what they had to say.

All photos courtesy of the members of the Forbes Council.

1. Life insurance

Life insurance is more than estate planning. Think of it as a vehicle that allows you to invest in a product that will secure your inheritance while providing you with tax-free income in retirement, if properly structured. – Manuel Vidal, Premium financing group

2. Self-directed IRAs

Self-directed IRAs are a little-known investment strategy once reserved for the very wealthy. The account owner chooses to make alternative asset purchases within the account, usually from investments that they know and understand. Permitted investments include real estate, partnerships, limited liability companies, hedge funds, precious metals and more: anything not prohibited as defined by the IRS. – Jaime Raskulinecz, Next Generation Trust Company

3. Online businesses

It’s easy to get tripped up in the ticker tape. Rather than chasing the ups (and downs) of the market, it’s better to invest your money in something over which you have more control. Consider buying a proven online business that shows steady growth and requires minimal owner involvement. It can be more rewarding both financially and personally. – Ishmael Wrixen, FE International

4. Cryptocurrency

Even the most successful hedge fund managers still cap aggressive portfolios at one percent of total holdings. BTC, ETH, and LTC seem to be the three most popular cryptocurrencies right now, if you are looking to gamble in the space. –Matthew May, Acuity

5. Real estate investment trusts

REITs can add an extra layer of diversification to your portfolio and bring the benefits of increased return and decreased risk. While overlooked, they tend not to correlate with stocks, so when part of your portfolio is going down, they can be going up – and vice versa. It’s also a liquid way to get into real estate without swallowing your fortune in a house. –She Kaplan, LexION Capital

6. 401 (k) account

A 401 (k) is an often overlooked place to save and invest for your future. Many employers provide them anyway, so using your 401 (k) account won’t cost you more, and if your employer has a matchmaking program, it’s really a no-brainer. No matter how close to retirement you are, renew the pledge to maximize your 401 (k) in the New Year and watch your savings pile up. – Shane Hurley, RedFynn Technologies

7. Health savings account

If you’ve maximized your retirement contributions and are looking for other tax-efficient investment vehicles to save for retirement, consider funding your health savings account, if your business offers one. Contributions are not taxable and all funds used for medical purposes are tax exempt. Second, you may be able to invest the funds and use them as a secondary retirement account. – Alexandre koury, Quest for values



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“It’s the gold of the garage”: Bentleys, Bugattis, Ferraris and Lamborghinis become investment vehicles in the Persian Gulf

On a typical Friday night, some of the world’s fanciest cars can be seen crawling along an approximately 16-mile stretch of road from Jumeirah Beach to Dubai. Bentleys stop next to Bugatti; there are Ferraris and Lamborghinis.

In heavy traffic, most don’t accelerate any further than the next brake light, but for many of their owners, driving isn’t necessarily the goal.

Ultra-luxury cars, some of which cost hundreds of thousands of dollars, are experiencing a resurgence in popularity in the Persian Gulf. The area’s wealthy sheikhs, wealthy locals, and well-paid expats splurge in relatively rare vehicles, as well as designer jewelry, bespoke yachts, and penthouses in London and New York.

Saudi Arabia’s Crown Prince Mohammed bin Salman bought a 500-year-old masterpiece by Leonardo da Vinci in November for a record $ 450.3 million, the Wall Street Journal reported on the week. last.

A McLaren 720S vehicle at a dealership in Newport Beach, Calif., Earlier this year.


Photo:

Patrick T. Fallon / Bloomberg News

McLaren Automotive Ltd. recently created a unique version of their latest 720S car for a customer in the United Arab Emirates. Finished in satin black with golden highlights, the vehicle features a 24k gold engine heat shield, gold painted wheels, and Arabic calligraphy evoking the Dubai skyline on the air brake. The price? Half a million dollars.

“You are unlikely to find a McLaren in your rearview mirror at a traffic light,” said Andreas Bareis, McLaren managing director for the Middle East, Africa and Latin America, referring to the Gulf market. “It’s a big draw.”

Lavish displays of wealth are everywhere linked to social status. But the bloc of oil-exporting Gulf countries has emerged as the world’s largest market for luxury cars – most costing at least $ 250,000 – on a per capita purchase basis, according to executives at several of the luxury car makers that follow. global sales data. The United States and China remain the largest markets overall for these automobiles.

The tendency for many limited edition vehicles to rise in value has made them even more attractive in the otherwise volatile investment climate of the Gulf region, which is largely the result of volatile crude prices as well as political conflicts and a massive anti-corruption campaign in Saudi Arabia. .

“When you buy [cars] at the top of the market, these are investments, ”said Christopher Sheppard, Managing Director of Aston Martin Middle East and North Africa. “They appreciate the assets.”

An Aston Martin Vantage Zagato, for example, which cost around $ 440,000 in 2013, is now changing hands at over $ 1.1 million, Mr. Sheppard said.

Demand for the high end contrasts with relatively weak auto sales across the Gulf region. A sharp drop in the price of oil since mid-2014 has forced Gulf countries to cut public spending and adopt austerity measures, such as removing fuel subsidies. The region’s overall new car market shrank nearly 20% last year and sales are down so far in 2017, according to Autodata Middle East, a Dubai-based company that collects data from car dealers. .

Automakers are not disclosing their sales in the Gulf region, but auto industry executives have estimated that the low-volume luxury segment, especially special editions built in limited numbers, has grown by several digits over the course of the year. the last two years.

Aston Martin says sales in the Gulf region are expected to increase 10-15% for 2017, to around 250 cars. And McLaren expects a 12% increase in Gulf sales from last year, to some 200 cars. Rolls-Royce’s representative in Dubai was the company’s largest dealer in terms of volume last year, the company said. A sales manager at the Dubai dealership said he sold more than 200 vehicles with the famous ‘Flying Lady’ hood ornament, up from around 160 in 2015.

A Rolls Royce Phantom VIII.


Photo:

Martyn Goddard / Corbis / Getty Images

Months before its ultra-luxury sedan hit the roads early next year, the all-new Rolls-Royce Phantom VIII sold out in the Gulf, according to Rolls Royce Motor Cars Ltd, a unit of BMW AG. The company declined to reveal how many units it sold, but a single car, with features like handcrafted seats and wooden interior panels, costs at least half a million dollars.

Aston Martin’s limited-edition Vanquish S Pearl, with mother-of-pearl finishes on the interior and priced at around $ 450,000, sold all 10 units made when it launched in the Gulf in November, according to the company. .

A fully restored 1965 DB5 Volante – a classic car made famous in films starring fictional British spy James Bond – has two unidentified people from the Gulf offering more than $ 2.2 million each to own it, said Aston Martin.

“It’s garage gold,” said Bodo Buschmann, founder and managing director of the Brabus Group, which customizes high-performance vehicles, referencing classic cars, some of which cost more than a million dollars. “Prices are increasing every day,” he said.

Write to Nikhil Lohade at Nikhil.Lohade@wsj.com

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