FX Advisory
Diversify Your Holdings Using Chinese Yuan
Holding one’s assets in multiple currencies is a risk-minimization strategy that is common among the truly diversified investor. It is a strategy that simp...
November 18, 2022
Real estate is an important part of a truly diversified portfolio.
It offers an investment into a “hard asset.” This means that you’re investing into something that is real and tangible, something that has intrinsic value. While an investment into a company’s stock can be a profitable one, there is always the possibility of that investment going terribly wrong. The company could go under, leaving your stocks worthless. The beauty of an investment into real estate is that its value will never hit zero, no matter what. One of the most appealing real estate markets globally is that of Switzerland. With steady growth and a strong economy, the country has become a haven for international businesses, investors, and even those looking to make a personal move in their lives. With high prices, the market is appealing to the most serious and successful investors. That, combined with low home ownership levels in the country, and finding renters won’t be an issue, providing a more than sufficient return on investment.Modern Portfolio Theory
All this talk on the importance of diversification isn’t merely postulating on our part. No, diversification is in fact sewn into the fabric of many modern, respected portfolio theories. Take, for instance, Modern Portfolio Theory (MPT). Modern Portfolio Theory is an asset management strategy developed by Nobel Prize winning economist Harry Markowitz. It can most easily be defined as “a theory on how risk-averse investors can construct portfolios to optimize or maximize expected return based on a given level of market risk, emphasizing that risk is an inherent part of higher reward.” Most simply put, Modern Portfolio Theory is about maximizing your return while minimizing your risk. You want to select your investment so that you diversify your risks and not give up on your expected return.The Swiss Real Estate Market
When it comes to investing in international real estate, Swiss real estate is the crème de la crème. Swiss real estate is notoriously difficult for foreigners to obtain, meaning that this real estate is highly coveted by smart investors. Being an incredibly small but wealthy nation, Switzerland is an optimal place to purchase real estate. The small size of the country puts a higher premium on real estate than would exist in a more sprawling nation. In addition, the relatively high wealth of the citizenry means that it will not be hard to find clients to rent out one’s Swiss real estate to. For most hopeful buyers, the Swiss housing prices are simply out of reach, even with current low interest rates. With the combination of high prices and strict mortgage requirements, the low interest rates mean nothing. The rise in prices has begun to slow down, however, thanks to falling mortgage rates. Asking prices for luxury homes has experienced a decline of 5%, and sales prices have lowered roughly 10 to 20% since 2015. In 2008, the area around Lake Geneva witnessed a high increase in real estate prices after multinationals brought jobs to the area, which created a demand for housing. Four years later the house prices dropped around 20%. Prices of real estate vary by region. In areas like Lausanne, a luxury apartment can be around 11,000 Swiss francs per square meter and can sit around 15,000 Swiss francs per square meter in Geneva. Near Lake Geneva and Lake Zurich, prices range from 13,000 to 20,000 Swiss francs per square meter.Why Invest in Swiss Real Estate?
There are numerous reasons why buyers are considering real estate in Switzerland, including a new lifestyle, quality of life, a vacation home, a permanent home, better education, relocating for work, or an investment. Due to steady economic growth that Switzerland has experienced in the past decade, investing in real estate in the country can be quite profitable compared to other European economies. The market has proven attractive for individuals and large multinational companies. In fact, Swiss real estate investments are some of the most profitable of the past 20 years. The real estate sector is stable with low market volatility. The country is highly regarded as a strong nation for international businesses and it has a powerful presence with companies in the insurance, pharmaceutical, and banking sectors. In fact, there are 12 Fortune Global 500 companies based in Switzerland. That’s a lot for a country of that size. Why should you specifically invest in real estate? The value of Swiss housing stock is four times the country’s annual GDP, at 2,516 Swiss francs! The commercial property contributes an additional 430 billion Swiss francs. The residential rental property market is very attractive to investors, because home ownership rates are very low. Only about 40% of the Swiss population owns their home, which is low by international standards. This means that around 53% of 4.15 million people living in Switzerland live in rental spaces.Who is Buying Real Estate?
Foreign buyers come from all over to take advantage of Swiss real estate, such as those from other European Union countries or the United States, Canada, or Russia. Though there are many buyers from outside counties, 85% of home buyers are Swiss. There are no restrictions for EU citizens to buy property, but a non-EU citizen must obtain a permanent residence status permit to buy real estate. For foreigners looking to invest in or buy property in Switzerland, there are many federal restrictions, as well as laws found in each of the individual states. Along with the purchase, the buyer must pay the real estate agent’s commission, sitting at around 3% of the purchase price, the registration tax on the transfer of ownership, any notary and land registry, and legal and land surveying services.Buy and Invest in Swiss Francs
Invest in one of the world’s strongest currencies.
Investors and businesses often rely on gold and foreign currencies to hold a portion of their money. For the most part, the U.S. dollar has been the primary currency in this regard. Those searching for a strong alternative to the U.S. dollar that has really proven itself as a solid way to save and earn money, however, should look at the national currency of Switzerland: the Swiss franc. Without fail, the Swiss franc, or CHF, has proven to be one of the strongest currencies globally, and the country has been considered a safe haven in the world of finance. In a world of financial worry and trouble, investors can seek refuge in Switzerland’s national currency, known for keeping its value. Investing in the Swiss franc can promise high security, low risk, and protection from inflation. Investors are always looking for a high return with minimal downside. Stocks can often offer high returns, but they can also come with high risks and high inflation.Why the Swiss Franc?
There are many benefits of the Swiss franc as an investment option. One of these benefits is Switzerland’s strong economic system with controlled requirements and slight growth. This stems from the size of the country. The economy is so strong that there is no national deficit. The Swiss income exceeds its expenses, so the currency is fully backed by a self-reliant economy. The country also boasts low unemployment, high per capita income, and a popular banking destination utilized worldwide. Even in times when the rest of Europe was experiencing financial turmoil, the Swiss franc stayed solid. During the European debt crisis in 2011, the EU international investors began relying on the CHF, which drove up the value of the currency. As the franc became stronger, the country’s exports began to feel negative consequences. Because of this, the Swiss government placed an artificial cap on their currency at 1.20 against the euro so the franc couldn’t become too strong. The Swiss Central Bank bought euro with newly printed francs. In January 2015, the Swiss National Bank removed the cap they implemented just 3 years prior. The stable franc soared. This was a shock to the forex market, and traders and brokers took a huge loss. After this, many investors were cautious to place their money in the Swiss franc, but it continues to be a staple in the investment world. The Swiss franc remains a safe haven despite the setback. With a fruitful financial system and a competitive economy backing the franc, investing in the currency proves to be a smart decision. For American investors, the Swiss franc can prove to be attractive because there has been low short-term volatility in the exchange between the CHF and USD. The monthly fluctuation in the exchange rate of the dollar and the Swiss franc has averaged around 1.95% since 1999, higher than the monthly change in exchange rate of the euro and the Swiss franc, which is around 0.85%. Because of their liquidity and availability, institutional and sovereign entities choose Swiss francs. Many are also choosing the franc because it is more available than other safe havens like gold.How to Invest
There are several ways investors can buy into this leading currency. Two of the most well-known ways is through ETFs and the forex market.ETFs
One of the easiest ways to invest in Swiss francs is through exchange-traded funds, or ETFs, that trade in U.S. stock exchanges. CurrencyShares’ Swiss Franc Trust tracks the price of Swiss francs in comparison to the U.S. dollar. ETFs are easy to purchase using traditional brokerage accounts. They are also eligible for margin, meaning investors can leverage their positions. Another advantage of ETFs is that they cost less. Since ETFs are traded as securities, the price of transaction is lower than the forex market.Forex
The forex, or the spot foreign exchange, market is the platform for trading in different currencies that offer a wider variety of currency pairs. It works in the same way a stock market provides a platform to buy and sell stocks. In the forex market, one would borrow one currency in order to buy another currency and close the transaction for profit or loss later. A profit occurs when the currency that was purchased increases in value compared to the currency used to buy it. In terms of Swiss francs on the forex market, the U.S. dollar is most popularly used to invest. The forex markets are in operation 24 hours a day and 5 days a week, allowing investors and traders a lot of freedom. Trading on margin is allowed in this market. This allows participants to increase investment amounts without having capital. It is advised that those looking to get involved in forex should gain some basic knowledge of the market. In general, long-term investors choose ETFs over the forex market.Where We Come In
If you haven’t invested in foreign currency before, or you’d just like a guide through your investments, Alpen Partners can walk you through the whole process. The Swiss franc can be a safe haven for your money. The strong Swiss economy with steady growth and low debt doesn’t seem to be changing anytime soon – and it will continue to be an important banking destination. Alpen Partners offers the possibility for clients to buy Swiss francs and deposit them in an account at one of our partner banks in Switzerland. The Swiss francs can be left in cash, or invested in CDs, bonds, equities, or any other CHF-denominated security.Want more information about Swiss francs or investing in international currency? Contact us below.
All investments involve certain risks. All investments carry the potential for financial loss, including the loss of the principal amount invested. Past performance should not be viewed as an indicator of future results. Market conditions and broader economic factors can significantly impact the value of investments. Investments in international markets are subject to additional risks, such as currency exchange fluctuations, political or economic instability, and variations in accounting practices. Alternative investments, including but not limited to hedge funds, private equity, and real estate, may be illiquid, speculative, and are not suitable for all investors. The above information should be considered before making any investment decisions. All posts and publications are for your information only and are not intended as an offer, promotion, or solicitation to buy or sell any financial instrument or perform any other financial transactions. All information and opinions expressed in posts and publications reflect our current views as of the date of the publication and may be liable to change without notice.Author
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