The Magic Triangle

Investment there are several trade-offs often referred to collectively as the magic triangle. This theoretical construct consists of the three elements of safety, liquidity and yield. These three attributes of investments are in conflict. A higher return forces the investor to the acceptance of a higher risk and thus a lower security level. Similarly, the liquidity.

The investor keeps the mirror-image duration of another market participant, whose planning reliability decreases with an increasing degree of liquidity of the investor in his portfolio. A key statement of the classic portfolio theory is the assumption that all assets in the free play of forces are properly valued and a higher profit can only be achieved through a higher volatility in the portfolio. It is impossible in the sense of the arbitrage condition, a free lunch”to achieve. Free extra income does not exist according to this. Known to be the portfolio theory relies on a whole A number of assumptions. This includes for example, that the borrowing is similar to the credit interest and that there are no transaction costs.

These assumptions differ but considerably from the reality of a small investor. An example will show, that the arbitrage condition with relatively small investments that are not far into the six-figure range, can be bypassed. Many banks offer a day money account, whose compounding capital market lies significantly above the comparable rate. The reference interest rate in this case the EONIA is because the deposits on a day money account are also daily due. It is to receive interest of the investors without another possible overnight which is one to two percentage points above the EONIA. However, an identical risk is through the system of deposit insurance. This deviation from the theoretical base is explained by an asymmetrical distribution of information. The Bank Customer knows from the outset that he will use only the day money account and can profit as economic.