Life and financial planning

It does not start with an investment but with a list: what is there, what is owed, what comes in and what goes out? Many people know this only roughly. Accounts at three banks, an old securities account, pension contracts, a flat with a loan: only when everything is on one sheet can you see what you are actually deciding about.

What matters is not only the total but how quickly you can get at the money. A flat or a contract holds wealth, but it cannot pay a bill. That is why the list separates what is available at short notice from what is tied up.

This includes a look into every securities account: how it is split, what it costs and what it has earned in recent years. Often several accounts hold the same shares, and the costs add up unnoticed.

Then comes the month: what comes in, and where does it go? Anyone who keeps track for a few months or sorts the bank statements is often surprised. A budget is not a rule to save but a decision made in advance: this much for housing, this much for everyday life, this much for holidays, and this much is put aside before the rest is spent.

First comes a cushion for the unexpected, the emergency cushion: three to six months’ spending in a savings account. Only what goes beyond it is invested for longer.

Family wealth rarely belongs to one person. Around the table there are often two or three generations with different experience, siblings with different plans, and often an entrepreneur who is used to deciding quickly and alone. Before talking about investments, everyone needs to understand what is at stake and agree on a way forward.

Who decides depends on the family. Many families agree on their goals and limits once and hand over the rest: within that frame the wealth is then managed day to day. Families with large fortunes often want to decide each step themselves. Then I take on the role of moderator: I help ask the questions families rarely talk about, translate jargon into everyday language and write down what has been agreed.

Moderating can be learned. I have trained for it over the years, with communication coaches and in seminars, and I have learned mindfulness. I have also practised yoga for years. It helps me to really listen and to stay calm when things get heated at the table.

Wealth has more than one job. Part of it must be available at all times, part of it should preserve purchasing power for the next generation, part of it may work entrepreneurially, and some of it should achieve something beyond the family. So the wealth is ordered by purpose: into pots, each with its own horizon, its own investments and its own measure of success.

Pots do not mean careful here, risky there. Anyone who wants to preserve purchasing power over generations needs returns after inflation, and over such periods these come mainly from companies and property. Translating “preservation” as “caution” slowly dispossesses the next generation.

Part of this is how many ups and downs a family can bear. That depends not only on how it feels, but on when the money is needed: what is needed in two years must not swing; what can stay put for twenty years may.

Goals become tangible once they have a date and an amount. “Putting something aside for the children” becomes “from 2034, twice 40,000 euros for university”. Then you also see which goals get in each other’s way and which comes first.

With the list, the budget and the goals, life can be worked out in numbers: how does wealth grow while you save, and how long does it last once you live on it in retirement? The sum is simple, but it answers the question that worries many people.

Returns do not come evenly. How much they swing, and what a plan must withstand, is shown by the simulation and the stress tests in the chapter “Strategy”.

Anyone who earns more than they spend puts the rest aside: for bad times, for old age, for the children, for a house or a dream. Money that just sits there loses value every year, because prices rise. At two per cent inflation, a euro buys as much after twenty years as 67 cents do today.

Investing therefore means giving the money to someone who puts it to work, and getting something back for it. It is almost never only about money. People invest to sleep well, to hold something together, to have a say or to do some good. Each of these motives has its price.

At heart there are only a few ways. You can give the money to a company, as a co-owner or as a lender. You can put it into property that earns rent. You can lend it to a government that pays for roads, schools and pensions with it. Or you can simply keep it, for example as gold. Through banks, a lot of money also goes to households that buy homes with it.

An example makes the difference tangible: a bakery into which you can put 10,000 euros in four ways. As a co-owner you get part of the profit, a lot in good years and nothing in bad ones. As a lender you get the agreed interest every year, however the year goes, but no more. As the landlord of the shop you get rent, and the shop stays yours even if the bakery closes. Gold in the safe brings nothing, but it does not depend on the bakery.

Whoever hands over money gives up three things: they cannot spend it today, they cannot get it back at any time, and they do not know for sure whether all of it will come back. The return on an investment is the price for giving these up.

The biggest difference is whether you are a lender or an owner. A lender is promised an amount; an owner only gets what is left over. That can be a lot, or nothing. In return, owners have been paid much better over the long run, though not in every decade.

Take a small business that needs a new machine for 80,000 euros. The owner has three options. He pays for it out of the last few years’ profits. He borrows the money from the bank and pays interest and repayments every month, whether the year goes well or badly. Or he takes on a partner who buys in: the partner gets no fixed payment, but a share of the profit and a say in important decisions.

Every company finances itself this way, from the craft business to the global group. For large companies the loan is called a bond and the partner a shareholder. When this is traded on a stock exchange, people speak of public markets. When the same happens without an exchange, directly between companies and funds, it is called private equity (a stake) and private debt (a loan).

A property earns rent, and in the long run its value follows what tenants can pay and what building costs. When buying, location, condition and price count; afterwards management, upkeep and the interest on the loan. Buying directly gives full control and a lot of work. Investing through a fund or a share hands over the work and raises other questions: How do I get out again? How much debt is inside? What does it cost?

A government bond is a loan to the state, which pays the interest out of taxes and new debt. Bonds of a sound state count as the safest investment in its currency, but even they are not free of risk: when interest rates rise, their price falls, and after inflation sometimes nothing is left. Between 2014 and 2022 investors at times even paid for the privilege of lending to the German state.

Gold pays neither interest nor rent. Its only return is the change in its price. It still has a place, as protection in extreme cases such as war or the collapse of a currency. Central banks bought more than 1,000 tonnes in each year from 2022 to 2024.

For investments, the economy is what climate and weather are for a garden. Growth is the climate: in the long run company profits grow roughly with the economy, and shares, stakes and rents live off them. The business cycle is the weather: good years are followed by weaker ones, and profits swing more than the economy itself.

Inflation eats into everything that promises a fixed amount. The central bank is meant to keep it in check; the European Central Bank aims for 2 per cent over the medium term. If prices rise too fast, it turns off the tap and raises interest rates; if the economy flags, it turns the tap on again. It often takes one and a half to two years before this reaches prices.

Politics sets the rules: taxes, government spending and debt, trade and tariffs, regulation. It mostly works through the same channels, through growth, inflation and interest rates. Tap a piece of news to see what it does to investments.

What matters is the surprise. Markets do not react to news but to how far it departs from what was already expected. That is why share prices often run ahead of the economy.

Together, growth and inflation make four kinds of weather. Each investment has its favourite, none thrives in all of them. That is why one diversifies across investments that hold up in different kinds of weather, not just across many shares.

Whoever buys a flat usually finances a large part with a loan. When interest rates fall, buyers can pay more and prices rise; when rates rise, prices come under pressure. The chart shows the yield of ten-year German government bonds at the top and the prices of flats in Germany below, over sixty years. Move the slider or point at the chart.

From 2010 to 2021, yields fell below zero and the prices of flats almost tripled. When rates rose sharply from 2022, prices fell by almost 14 per cent by early 2024. After inflation the fall was larger: at the end of 2025, flats were more than a fifth below their peak in real terms.

The long series shows something else too: after inflation, flats were about a sixth cheaper in 2009 than in 1981. Property is a real asset, but it does not rise by itself.

The DAX tracks the 40 largest companies on the Frankfurt stock exchange and includes their dividends. It started at 1,000 points at the end of 1987 and stood at around 25,800 at the end of October 2026: almost 9 per cent a year on average. The way was never straight. After the dotcom bubble burst it stood at around 2,900 points at the end of 2002, less than half its level three years earlier, and in 2008 it lost 40 per cent.

Ahead there is no line, only a fan. With the sliders you set the return and the fluctuation you assume for the next 20 years; since 1988 the DAX has fluctuated by about 22 per cent a year. The larger the fluctuation, the wider the fan. The higher the return, the more rarely a path ends below today’s level; it is never ruled out.

For every asset class, public and private, I estimate expected returns, risks and how strongly they move together. The estimates rest on valuations, interest rates, the environment and long histories of data; statistical models and artificial intelligence help to read them. What comes out is a range of plausible outcomes, not a single number.

With these ranges the portfolio is simulated thousands of times over many years. The fan shows where the wealth could stand: in the middle half of all paths (dark) and in nine out of ten (light). Move the slider to see what more or fewer growth assets do to the fan and to the chances of reaching two goals.

Probabilities are not enough. I also check how the portfolio would fare in specific bad scenarios, so that the family knows the loss it would have to sit through before it happens. The bars follow the slider above.

Costs work like a headwind, every single year. They hardly show, because they come off the return and are not on any invoice. Over decades they still help decide the outcome, because money that is gone no longer earns compound interest.

Costs are not bad in themselves. Whoever pays for something that brings more than it costs, such as access to private markets or advice that prevents mistakes, does good business. What matters is knowing what you pay and what for. Taxes work in the same way; how to shape them is a matter for tax advisers.

The way from where you are to the target costs too. That is why the switch happens step by step: first what becomes free anyway, and with an eye on the taxes a sale would trigger.

An index fund simply copies a market, at low cost. Active funds try to beat it and charge higher fees for this. Over ten years, only a small minority manages it: in Europe, only around 2 to 4 in 100 active equity funds beat their index.

This does not mean that active managers are never worth their money, for example in markets for which there is hardly an index, such as private markets. It means that you have to choose very carefully and check regularly. That is exactly what we research, for example with artificial intelligence in fund selection.

Most single shares earn less over their lifetime than short-term US government bonds. The whole gain of the stock market comes from a few companies. Hendrik Bessembinder has shown this for the US since 1926 and, with colleagues, for more than 64,000 shares worldwide.

Whoever holds only a few shares can easily miss these few. Whoever diversifies broadly has them on board, without having to know them in advance.

Private equity, private debt and real estate funds call capital over several years and pay it back later. Early on the family pays in more than it gets back, the familiar J-curve. I model these cash flows and the fund values, so that commitments fit the family’s liquidity.

The sliders show the model of Takahashi and Alexander (2002), a widespread tool for planning commitments: how fast the fund calls capital, how strongly it grows and when it pays out. The faster the calls, the deeper the J-curve; the later the payouts, the longer the money stays tied up.

How well the model fits, for example when funds use credit lines, and whether artificial intelligence forecasts better, we examine in supervised theses.

The big moments of a fortune are rarely pure investment questions. A sale, an inheritance or buying a property touches law, tax and investment at once. Discussing them one after another with three advisers easily gives three answers that do not fit together. And much can only be shaped beforehand, not afterwards.

For each of these questions there are specialists: lawyers for corporate, inheritance and tax law, notaries, tax advisers, a custodian bank, asset managers and funds for the liquid markets, and managers for private equity, private debt and property. What matters is that they sit at the table in time, and that someone makes sure their answers fit together.

Odysseus had himself tied to the mast before the ship sailed past the Sirens. He knew he would not resist their song, so he decided beforehand, in calm. Investment guidelines do the same for wealth: they set out what happens in a crisis while there is no crisis yet.

At the end there is a proposal that explains why each part of the wealth is invested the way it is. After the decision and implementation the allocation is reviewed regularly. A reason for change is an event in the family’s life, such as a sale, an inheritance or the next generation joining, or a clearly changed assumption about the markets, never prices alone.

If one part drifts away, for example because shares have risen strongly, it is brought back into the agreed range. A regular report shows where the wealth stands, what it has cost and whether it still fits the plan.

The Deutsches Aktieninstitut has calculated for every year since 1975 what an investment in the DAX would have brought, depending on how long it was held. Move the slider: for one year the results range from a loss of 44 per cent to a gain of 84 per cent. The longer the holding period, the closer the dots move together.

In these 50 years, everyone who held for 13 years or longer made a profit. The worst case was buying at the end of 1999, at the height of the dotcom boom: twelve years later it was still slightly in the red. That is history, not a guarantee; but it shows why time is one of the pillars.

Whoever leaves the market in a crisis to wait for calmer times easily misses its best days. J.P. Morgan has calculated this for US shares over 20 years. Move the slider: those who missed only the ten best days ended up with less than half.

The catch: seven of the ten best days came within two weeks of the ten worst. Anyone who sold in the panic was usually not back in time.

Funds report their return as if someone had bought on the first day and never sold. Investors, however, often buy after good years and sell after bad ones. Morningstar therefore measures what the average dollar in the funds actually earned.

How much of this is really due to bad timing is disputed. A study in the Financial Analysts Journal (2026) re-examines Morningstar’s study of 2025 and finds only about 0.1 percentage points a year; according to it, most of the gap has other causes. What is certain: whoever sells at the bottom misses the recovery. For broadly diversified investments it has so far come after every large setback, sometimes only after many years.