The magic triangle of investments: orientation for investors

When it comes to wealth accumulation or capital preservation, sooner or later you will come across a term that is considered a kind of basic principle in the financial world: “the magic triangle of investments”. It describes the conflicting goals of security, return and liquidity, i.e. the three central factors that determine or help to determine your investment decision.

But what exactly does this magic triangle of investments mean? How can it be applied in practice, and why is it still a reliable compass for anyone who wants to invest their money – whether privately with small amounts or as an experienced, large investor?

Three corners, one goal: your stable investment triangle

The so-called investment triangle illustrates that there is a tension between three objectives for every investment:

1. Security – i.e. minimizing the risk of losing capital
2. Yield – increase the potential return on your investment
3. Liquidity – achieving the availability of your invested capital

You cannot achieve all three goals to the maximum extent at the same time. For example, if you opt for an investment with high security and good availability, you will usually have to compromise on returns. If, on the other hand, you attach importance to high returns, this is often associated with a higher risk or limited liquidity.

This is exactly where the magic triangle of investments helps you to set priorities and develop an investment strategy that suits your goals, your risk tolerance and your time horizon.

Exemplary application of the magic triangle

Let’s take two classic forms of investment: Buying bonds or investing in equity funds.

• When you buy bonds, you are making a comparatively safe investment with predictable returns. At the same time, many bonds remain easily tradable, which means that they are also liquid. The potential returns, on the other hand, are usually limited compared to equities. In this case, the investment triangle shifts more towards security and availability.
• With equity funds or individual shares, on the other hand, you accept more risk but also have the potential for a higher return. Liquidity can also be high with exchange-traded securities, while security is naturally lower due to price fluctuations.

Both strategies are part of a well thought-out portfolio in which the magic triangle of investments does not force you to be one-sided, but rather leads you to a conscious balance.

Why the investment triangle is more relevant than ever today

In times of inflation, low interest rates and geopolitical uncertainty, the balance between risk, return and flexibility is more important than ever. If you want to invest money, you should not rely purely on promises of returns, but take into account your own life situation, financial goals and emotional resilience.

The investment triangle provides a clear, visually easy-to-understand orientation framework. It does not force you to decide “right or wrong”, but helps you to make your personal weighting wisely.

Younger investors in particular benefit from developing a feel for these relationships early on. Because whether you want to save for the long term, build up capital for a real estate purchase or structure your assets, the magic triangle of investments is always a reliable guide.

FI Investments – Your partner for well thought-out strategies

FI Investments helps you to harmonize your individual investment triangle. This is not about rigid models, but about flexible solutions that are geared to your needs.

Perhaps you want to invest part of your portfolio in real assets and buy bonds at the same time to create stability. Perhaps you are focusing on availability because you want to access capital in the coming years. Or you are specifically looking for yield opportunities with manageable risk.

Making smart decisions with the magic triangle of investments

The magic triangle of investments is not a rigid construct, but a practical model to bring clarity to the variety of options. Whether you want more security, are looking for targeted returns or value flexibility – you can achieve a lot with a well thought-out combination in the investment triangle. Let FI Investments guide you – for well-founded decisions with foresight.

For more information, download our white paper “The safest way to buy bonds successfully” and learn how to make financial decisions that fit your life.