What is the best way to invest my liquidity?
The increased attractiveness of short-term interest rates has brought the "liquidity" asset class back into focus after a long time. In the following article, we present the characteristics and objectives of liquid investments, the advantages and disadvantages of the various investment options and the Colin&Cie special approach.
Liquid investments are primarily characterised by rapid availability and low fluctuations in value. Investors use them to hold an iron reserve or to protect themselves against emergencies and unplanned expenses. Other reasons may include a desired interim solution for building up or utilising capital. Traditional investment options include bank balances in current, call money and fixed-term deposit accounts. In addition, high-grade government, and corporate bonds with short maturities as well as actively and passively managed money market and bond funds are also used. The investment strategy of the latter two options is geared towards optimising and stabilising returns. They consider the fact that the need for funds is generally unspecific, and the time of utilisation cannot be specifically determined.
A comparison of liquid investments
To answer the question of how best to invest liquidity, it helps to compare the various forms of investment in terms of "return" and "risk". Balances in current or call money accounts earn little or no interest. Even if fixed-term deposits currently offer an attractive return, there is a credit or counterparty risk with them - as with all bank deposits - as the statutory deposit protection is limited. In the eurozone and Switzerland, it only applies to 100,000 euros or Swiss francs per depositor and credit institution and covers the sum of current, call money and fixed-term deposit accounts. As established banks have also repeatedly fallen into difficulties in recent years, this risk should not be underestimated. If one compares the returns on fixed-term deposits with other more diversified investments, the counterparty risk is not sufficiently compensated for by a higher return.
When investing directly in government and corporate bonds with short maturities, the yield advantage over bank deposits is often diminished by high, one-off transaction costs. In addition, the necessary risk diversification within the portfolio can only be realised to a limited extent. The reason for this is the usually limited market access for smaller denominations and the associated concentration on certain individual securities. Ongoing costs must be considered for money market and bond funds, which also optimise returns. In terms of security, however, they offer a double advantage. On the one hand, this is due to the broad diversification of securities across several countries and sectors that a fund enables. Secondly, the counterparty risk is eliminated, as the capital is not included in the bankruptcy assets of a company and is therefore protected from access by creditors.
Liquidity management by Colin&Cie
Colin&Cie answers the question of how liquidity can best be invested with the best possible combination of all relevant components. This includes daily availability, the generation of a stable, attractive return after costs, broad diversification, low fluctuations in value and the complete elimination of counterparty risk. To achieve this, Colin&Cie invests its liquid assets in several actively and passively managed money market and bond funds. The funds invest in creditworthy government and corporate bonds (rated A) from various countries and sectors, with short maturities of a maximum of 12 and 24 months respectively. The funds are selected by Colin&Cie as part of an extensive, multi-stage selection process (best-in-class approach).
Liquidity management by Colin&Cie is recommended for clients with a low risk appetite and a short investment horizon. It is an integral part of the Colin&Cie holistic advisory approach to asset structuring and the identification of individual investment goals (goal-based investing). The mandate can be managed in the reference currencies euro, Swiss franc, US dollar and pound sterling and is a useful addition to long-term wealth planning. Colin&Cie advisors will be happy to provide further information.
Disclaimer - legal notice
This publication was produced by the Investment Office of the Colin&Cie Group. The information and opinions contained in this document are based on sources we believe to be reliable. However, we cannot guarantee the reliability, completeness or correctness of these sources. All information and quoted rates are only up-to-date at the time of this publication and are subject to change at any time without notice. The content is based on numerous assumptions made by the Colin & Cie Group. It should be noted that different assumptions can lead to materially different results. The forecasts and assessments are only current at the time this publication is prepared and can change at any time without prior notice. Past performance of an investment is not a guarantee of future results. Certain investments can experience sudden and substantial losses in value. This information and views do not constitute a solicitation, offer or recommendation to buy or sell investment instruments or to carry out any other transactions. We recommend interested investors to consult their personal advisor before making decisions on the basis of this document so that personal investment goals, financial situation, individual needs and risk profile as well as further information can be duly taken into account as part of a comprehensive consultation. The information contained in this publication is marketing material that is distributed for advertising purposes only.
