Investor pitfalls
Money Mixtape
Monday, 13 January 2025 - 7 minutes
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Welcome back to Money Mixtape, with Victor Cianni from Alpian Bank where we dive into the rhythm of finance and fine-tune your investment game. Today’s topic is acquisition and ownership—two pillars of investing that are often underestimated but critical to avoiding financial pitfalls. Joined by Victor, we explore these concepts and their implications for smart investing.
Victor kicks things off by highlighting two common yet costly mistakes investors make. The first is neglecting hidden costs. Many investors meticulously research an asset—be it stocks, real estate, or collectibles—yet fail to account for the full spectrum of costs associated with acquiring, maintaining, and selling it. These expenses can significantly erode returns.
For instance, real estate is more than just the purchase price and rental income potential. Agency fees, notary costs, renovations, insurance, taxes, and tenant risks often pile up, shrinking profit margins. The same applies to other asset classes. Whether it's art, wine, stocks, or cryptocurrencies, hidden costs like transaction fees, management charges, and storage expenses frequently go overlooked. Victor advises adopting a comprehensive view: calculate total ownership costs upfront. If the investment remains profitable after factoring in all these expenses, you’re in good shape.
The second mistake is misunderstanding ownership. Many investors assume that purchasing an asset equates to absolute ownership. However, this isn’t always true. Often, you hold contractual rights rather than physical possession. This distinction is crucial because reliance on intermediaries introduces risks. If the intermediary fails—due to bankruptcy, fraud, or mismanagement—you could lose access to your investment.
Examples abound, such as the 2008 financial crisis, where structured product issuers went bankrupt, or the collapse of FTX, leaving cryptocurrency holders without access to their funds. Even with physical assets, improper storage can lead to value loss. For instance, poorly stored wine, art, or collectibles can diminish in worth. Victor emphasizes the importance of securing access guarantees and carefully considering storage logistics.
To navigate these challenges, investors must ask the right questions:
Where will my stocks or assets be held in custody?
What happens if my broker or intermediary collapses?
How do I safely store physical investments like art or collectibles?
The discussion concludes with a key takeaway: due diligence is essential. Always account for hidden costs and understand the nature of your ownership. By planning ahead, you can protect your portfolio from preventable losses and ensure your investments remain secure.
Join Alpian today and get CHF 100 welcome bonus, use the code WRS100
Go to: www.alpian.com
