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17. September 2021 | Family Foundation in Liechtenstein as a rescue from property tax?

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16. November 2022 | Understanding investment and asset protection holistically (this post)

Investment and asset protection are inextricably linked. One is the guarantor of the other. Because without investment and asset protection, the already gained assets soon disappear to dust. In the area of asset protection in particular, a number of factors play an important role. For example, asset protection is intended to protect against a variety of risks, such as taxes, asset management costs, and lump risks. However, this should already be taken into account when investing, because this is often geared towards the long term. Even here, asset protection helps to secure the hoped-for return.

Investment and asset protection are like Siamese twins: one twin can only exist if the other’s livelihood is also secured. With this binary formula, we want to explore in this article what effects the network of investment and asset protection has on these two poles. So we want to see where the intersection is and what external influences affect it. Because only with this basic understanding we succeed in sustaining wealth and allowing it to continue to flourish.

Let’s start with the question of the prerequisites that must be met in order to deal with the topic of investment and asset protection at all. The answer is quite simple: an already existing asset. However, we must make a distinction at this point. For wealth in itself may well be protected against loss of any kind with a clever strategy, but it does not increase by itself. So the first question is how to form an investment from an already existing asset.

For an investment, some types of assets are more likely to be considered than others. This does not mean the investment forms themselves, but rather the assets that one wants to use for investment. Because usually you need liquid funds for an investment. Only with money can you freely choose which investment you want to pursue. All other forms of wealth can either serve only as an object of investment or at best as an object of exchange.

The core point of an investment can be of two natures. On the one hand, an increase in value over time is of course desirable. Buying something cheaper than you can sell it later is the simple trick here. This presupposes that the demand for the investment object increases steadily. What must not happen is a loss of value. On the other hand, you can also use an investment to generate current profits. Ideally, investments should have both characteristics – as strongly as possible.

A loss of value threatens on the one hand by inflation, i.e. inflation, on the other hand by a loss of purchasing power. Actually, one would have to think that the inflation has a positive effect on the desired increase in value. Finally, the selling price increases when the investment object is sold. This is certainly true to a certain extent. However, at a certain point this is also the downside. Because of the inflation, the demand also decreases, because fewer and fewer people can afford such a purchase. Anyone looking for buyers in such a situation will find themselves in competition with other providers. As a result, the selling price for certain assets then falls. Certainly, some forms of investment are more resistant to inflation or other risks than others at such times. However, this always remains a bet with an unclear outcome.

Asset protection is the second important aspect of the investment and asset protection project. It may even be the more important of the two parts. Because successful investments can have as much as you want, if the gained assets simultaneously lose more value than you gain, then this is anything but optimal. It must therefore be expedient that the assets also retain their value. All measures taken for this purpose therefore fall under the generic term asset protection.

A central point that should always be considered in connection with investment and asset protection is taxes. Finally, taxes can estimate a significant part of the return on an investment. In this respect, asset protection consists of sophisticated tax advice. With the right tax strategy, the planning of taxes can be controlled, so that you can estimate in advance whether an investment is worthwhile at all. Most assets are long-term projects. So you should also be sure before the investment that you can count on a taxation that protects the return in the end. In some cases, an investment abroad can also be considered.

Investment and asset protection also go hand in hand with the increase in assets. Finally, asset management also causes ongoing costs. At the same time, costs must not significantly reduce returns. However, this is often the case with asset management by banks. With a share in the range of up to 2% on the assets under management, this can significantly reduce a return of about 6%, or even eliminate it altogether. So it is worth looking for alternatives that cause the lowest possible costs in asset management.

Another point regarding asset management by banks reveals another risk. Because banks often offer their investors primarily their own financial products. These are financial products that the banks have tailored in such a way that they give them the greatest possible profits. Whether this is always to the advantage of investors, but it is difficult to estimate in advance. Therefore, investment and asset protection should also be thought through wisely. The more alternatives you can compare, the better. In addition, it often helps to expand your own horizons.

A central element in asset protection is certainly also diversification. By allocating risks to as many asset classes as possible, you reduce them for the total assets. But which asset class should actually come into question usually depends on your own ideas. Well-founded advice is also very useful for this reason.

This is often accompanied by the search for solutions to the question of asset succession. Because a big risk for assets is the inheritance and gift tax. Despite sometimes quite generous allowances and opportunities for the low-taxed or even tax-free transfer of corporate assets, the taxes are sometimes considerable. It depends on various factors. But only if you regulate these favorably in advance, you can control the taxation. Therefore, the regulation of asset succession is an important component of asset protection. This should also be considered when investing.

It is clear that investment and asset protection should always be inextricably linked. Otherwise, there is a risk that the value of the asset will diminish rather than increase. We were able to show that the risks are varied. Therefore, the aspect of asset protection is actually of great importance.

In fact, there are a number of possibilities with which you can combine investment and asset protection. For example, this comes into consideration when setting up a family foundation. For example, the rental of vehicles by the family foundation to your own company is an excellent tax structure, with which you can save taxes on several levels and at the same time increase and protect your assets.