Investors must balance risk and return


Today’s extremely low rate environment could push investors into riskier securities trying to capture higher returns, warned Steve Ellul, a senior investment manager at Valletta Fund Management.

“Ten years ago, relatively safe Maltese government bonds yielded almost 4.3% with maturities of 10 years. Today, those same bonds are yielding less than 1.5% and investors wanting to maintain the level of return they used to get will have to invest in lower quality bonds.

“These bonds carry a much higher risk of default than local sovereign bonds and that is also why they offer a relatively higher yield. In reality, the return offered on these risky assets is not high enough to offset the higher risk. The main danger is that investors inadvertently take a higher level of risk than their personal risk tolerance, ”he said.

He stressed that this was the main advantage of allowing investment managers to have an element of discretion in the selection of asset classes.

“In this way, the investment portfolio will be continuously exposed to assets which, according to the manager, offer the best risk / return compromise.

“The downside is that the actual exposure to a given asset class will change at the discretion of the fund manager. However, these funds allow specialized decisions to be made by experts in the field, ”he said.

If you get professional advice and buy at the right price, your investment should pay off regardless of the market when you decide to sell.

Christian Debono, Director of Network Wealth at HSBC Bank Malta, said it was important to understand your own risk appetite: “Financial planning advisors will take the time to understand you and your future ambitions and recommend tailor-made solutions to achieve your goals, whether you are planning your retirement, your children’s education, managing your wealth and organizing to protect your family’s future.

However, Jeff Buttigieg of Re / Max pointed out that the Maltese are still in love with bricks and mortar: the company’s latest Insights survey showed that 91% of residents prefer a real estate investment over stocks, stocks or whatever. bank deposit.

He also believes that the growing demand for buy-sell has added a whole new dimension to the boom.

“The hire purchase is the result of the strategic work that past and present administrations have done over the past few years to create an infrastructure not only to attract foreign investment and businesses to relocate to Malta and set up shop. , but also to create jobs. for the local community.

“The healthy scenario of foreigners moving to Malta – for work assignments or other reasons – encourages investors to buy houses for rent and entrepreneurs to buy and develop land in order to meet demand from foreigners looking to rent and those looking to buy property.

However, foreigners are not the only ones driving the real estate market. He pointed out that, according to national statistics, there was a 24 percent increase in sales of local properties, with locals accounting for 94 percent of sales.

“We are not financial advisers and investments go through their ups and downs just like the real estate market has its cycles. But luckily, with strong financial institutions and a lack of dependence on foreign investment, we have survived the latest economic downturn, ”he said.

One of the problems with real estate is that it is not very liquid if people want to access their investments.

“Real estate has never been very liquid unless the price is so attractive that it generates immediate interest,” said Adrian Friggieri, branch manager of ThirtyFour Real Esate.

“The whole point of investing in real estate is that at least your money goes up in value and you can generate income through renting rather than waiting for interest.

“Buying to lease can also be very tricky when it comes to actually calculating your percentage of return on investment; this is the real key to the success of the growth of the real estate portfolio.

In this low interest rate scenario, it may not be surprising that real estate agents also view property as one of the safest investments.

“When you invest in the right kind of property you are safe because no matter what happens you see, profit and make a profit directly from the property you have invested in,” said Owen Muscat, Managing Director of Sky Estates.

The demand for rental properties is increasing day by day

He argued that with the current demand, if the investor were to liquidate, there would still be a buyer waiting to buy the property at the right price.

However, it is not without pitfalls, because the return on investment depends heavily on the price that the investor pays at the outset.

“If you get professional advice and buy at the right price, your investment should pay off regardless of the market when you decide to sell,” Muscat said.

“And the economy brings foreigners from all over the world to Malta, so the demand for real estate rentals is increasing day by day. As a result, many investors buy real estate to put on the rental market and get high returns on their investment. “

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