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Risks with ETFs, real estate and closed-end funds vs Direct investments in real estate

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Investing in ETFs, closed-end funds, or real estate funds is only recommended for investors with higher risk tolerance. These special funds involve additional risks.

Those who buy shares in investment funds are usually speculating on a higher return than other forms of investment. However, when making an investment decision, the investor should bear in mind that higher chances of profit are always associated with higher risks. If you intend to invest in special funds, you should find out about the special risks of such shares or seek advice from an independent financial expert before buying.

Special risks must be taken into account when investing in the following types of funds:

  • ETFs (Exchange Traded Funds)
  • Open real estate funds
  • Closed funds

ETFs and their specific risks

The specialty of ETFs is that they replicate the development of certain indices relatively rigidly. Because this coupling does not require active intervention, the fees of ETFs are significantly lower than those of other funds. But in times of falling prices, the rigid link to the index can lead to severe losses in value. There is also another risk because ETFs use different methods. In the case of synthetically replicating (replicating) ETFs, another party, the so-called swap counterparty, is involved. If this third party cannot meet its obligations, the ETFs shareholder will suffer financial loss. It is hard to tell which method the individual ETFs use.

Shares in open real estate funds

Investing in real estate requires a long-term investment horizon. This rule also applies to the acquisition of shares in real estate funds. If you want to sell your shares, there is twelve months between the declaration of return and the actual sale. The value of your shares may have fallen significantly within a year because real estate prices are subject to fluctuations. You may then be forced to sell your shares at a price below their cost price. The cancellation of the termination is excluded.

Risk of total loss when investing in closed-end funds

You need to do your research very carefully if you want to become a shareholder in a closed-end fund. As a rule, participation in a closed fund is only possible with comparatively high capital investment. This capital is also tied up for a very long time. During the term of the fund, the units cannot be sold or can only be sold at a high loss. A high level of economic competence is required to assess the business model of the fund. But it is also difficult for experts to assess the forecasts made. There is no guarantee of return for the investor, in the worst case there is a risk of the total loss of the capital invested. However, there is no additional payment obligation. Why do investors add so much “risk” to capital investments, especially when it is clear that 9 out of 10 investments in closed-end funds do not go as advertised or even fail with a “total

Hello, I have been working as an investment consultant and author for more than 20 years. I love what I do and I have enriched everyone around me. A lot of money is not important, the main thing is how you use the money.

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