Category: Basics of Investing

What is Thematic Investing?

Post author By Getri
Post date 3. Aug 2022
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Basics of Investing

Getri
August 3
Basics of Investing

Thematic investing is an approach when a person is concentrating on investing in predicted long-term trends rather than specific companies or sectors. For example, instead of investing in different companies, that shows a promising future, a person concentrates on climate change topics and companies that fall into that category. Why might people want to choose this investing approach? This kind of investment approach helps people to take advantage of changes across entire industries, not just separate companies and opportunities created by technological, geopolitical and macroeconomics trends.

Definition

Thematic investing is a method where people try to identify significant opportunities and trends and invest in them, rather than investing in individual stocks or sectors. Thematic investing has a variety of themes, that focuses on different trends, such as digital economy, smart cities, food revolutions, climate change, autonomous technology and etc. Over the years, interest in thematic investing has been growing, as it helps to position investors’ portfolios for a long-term growth opportunity and capture growth from many different geographical areas and sectors, but concentrating on one major theme, that might be a mega-trend and bring important gains in the future. Also, it sometimes helps people to invest in what they actually believe in and care about.

Sector investing vs. Thematic investing

At first thematic and sector investing might sound similar and many people mix them up. The key differences between these two are, that sector investing distributes the investment funds into specific segments, like energy, healthcare, information technology and others. Thematic investing touches much more sectors to align with market opportunities.

How thematic investing works?

Although with the thematic investing the effort required to select companies people want to invest in is reduced, people still need to research the theme they are interested in, what are the opportunities of that theme, in which direction is it going, what the future might hold for it and what are the risks of investing in that theme. When people selected a theme, usually there are two ways to invest in it – either manually chose the companies and build a portfolio, or choose thematic investment ETFs (or do both).

Usually when creating a thematic portfolio strategy, people look at few factors:

Long-term trends
Ideas
Beliefs
Values
Disruption

Often, thematic investing focuses on mega-trends, disruptions in major industries, and sustainable investing. Often people choose to invest in themes that align with their beliefs and values. A good example of value-based thematic portfolio would be investing in woman-run companies or, for example, companies that take care of environmental sustainability.

There are several different themes for investing, probably the most common ones being:

Environmental – people can choose to invest in companies that work on climate and environmental issues and help to reduce the effects of global warming and similar issues. These companies usually work in sectors such as energy and manufacturing. A few examples of such ETFs – are BlackRock Sustainable advantage, Parnassus Core Equity investor, Shelton Green Alpha Fund and others.
Blockchain technology – these themes work on providing new innovations regarding cryptocurrency, NFTs and blockchain technology. A Few examples include – Bitwise Crypto Industry Innovators ETF, Siren Nasdaq NexGen Economy ETF, VenEck Digital Transformation ETF.
Healthcare – these themes want to capitalize on the innovations in companies that focuses on healthcare solutions, like technology for vaccines or new treatments for cancer. Few examples – iShares Healthcare Innovation UCITS, Global X Health & Wellness Thematic, Goldman Sachs Human Evolution.

What are the benefits of thematic investing?

There are a few main benefits when choosing thematic investing:

Sector independence – themes include many different sectors and aren’t limited to one sectors’ ups and downs.
Reflects changing world – thematic investments not only brings innovation into the world, but actually can change it and people can be a part of that change.
Potential higher returns – If the area you invest in through thematic investing performs well, the results for investors can be higher returns compared to other mutual funds.

What are the disadvantages of thematic investing?

As in all investing strategies, there are some disadvantages:

Short-term trends – thematic investing focuses on following certain trends, but there is always a risk of chasing a short-term trend, which won’t bring investors long-term wealth growth.
Too narrow – Thematic investment sometimes can be too narrow in assets. Diversification is an important strategy while investing since it helps to reduce risks. Some thematic portfolios are quite narrow and people who are investing in them, have a higher chance of losing the value of their investment since their portfolio is not diversified.
Volatility – if the thematic investment is too narrow, its volatility of it can be high. Investors need to balance between identifying strong trends and maintaining a diverse portfolio.

What thematic ETFs does Fundvest offers?

(ESGE) Lyxor MSCI Europe ESG Leaders UCITS ETF
(EDMU) iShares MSCI USA ESG Enhanced UCITS ETF
(RENW) L&G Clean Energy UCITS ETF
(SNSR) Global X Internet of Things UCITS ETF
(ECOM) L&G Ecommerce Logistics UCITS ETF
(WCBR) WisdomTree Cybersecurity UCITS ETF
VanEck Video Gaming and eSports ETF (ESPO)
(XAIX) Xtrackers AI & Big Data UCITS ETF
(ECAR) iShares Electric Vehicle & Driving Tech UCITS ETF
(GNOM) Global X Genomics & Biotechnology UCITS ETF
(LERN) Rize Education Tech and Digital Learning UCITS ETF
(FOOD) Rize Sustainable Future of Food UCITS ETF
(HEAL) iShares Healthcare Innovation UCITS ETF
(SKYE) First Trust Cloud Computing UCITS ETF
(BCHN) Coinshares Global Blockchain UCITS ETF
(EFPX) First Trust IPOx Europe Eq Opp UCITS ETF
(VVMX) VanEck Rare Earth and Strategic Metals UCITS ETF
(ROAI) Lyxor Robotics & AI UCITS ETF
(IQQQ) iShares Global Water UCITS ETF
(DPGA) L&G Digital Payments UCITS ETF
(ETLI) L&G Pharma Breakthrough UCITS ETF
(CT2B) iShares Smart City Ifrastructure UCITS ETF
(CAVE) VanEck Smart Home Active UCITS ETF
(SMAFY) Amundi Smart Factory UCITS ETF
(BLUM) Rize Medical Cannabis and Life Sciences UCITS ETF
(INFR) iShares Global Infrastructure UCITS ETF
(IUSB) iShares Global Timber & Forestry UCITS ETF
(GDIG) VanEck Global Mining UCITS ETF
(VOOM) Lyxor Global Gender Equality (DR) UCITS ETF
(LI7U) Global X Lithium & Battery Technology UCITS ETF
(OSX4) Ossiam Eu ESG Machine Learning UCITS ETF – 1C EUR
(BETS) Fischer Sports Betting & iGaming UCITS ETF
(LUXU) Amundi S&P Global Luxury ETF

Tags etf, investing, investing strategy, thematic investing

Basics of Investing

What are ETFs?

Basics of Investing

Getri
August 3
Basics of Investing

ETF means “Exchange-traded fund” and they pool securities to give better access and coverage on different products to invest in.

ETF acts like a stock that you can buy and sell whenever you want. The difference is that when you buy 1 share of ETF you can invest in hundreds of companies all at once. Depends on the ETF and how many securities are in it.

Let’s take for example (IDVY) iShares Euro Dividend UCITS ETF. This ETF follows 30 companies with the biggest dividend yield in Eurozone. That means instead of spending time finding the best dividend payers in the EU you can simply buy this ETF and invest in the top 30 Euro dividend payers with one transaction. Or let’s say you want to invest in Chinese companies but finding the right ones can be difficult and risky. In order to cover a bigger part of the market and lower the risk, you can choose (FXC) iShares China Large Cap UCITS ETF and invest all of the biggest Chinese companies at once.

ETFs work best when you want to invest in a certain segment without doing too much legwork yourself. There are over 8500 different ETFs in the world to pick from. Segregated by themes or sectors or market cap or regions or any other aspect. ETFs are a good groundwork to build your investment portfolio on. They require less attention and compared to single stocks, ETFS are considered “safer“ investments. If you buy 1 stock and that stock falls then your investments are in red, but if you buy an ETF and one stock falls then there are other stocks that can move up during the same time period – therefore your risk is lower and success is not depending on one stock but rather on the segment.

Pros and cons of ETFs

Like any other financial product, there are certain advantages and disadvantages to ETFs. Let’s bring out the most important ones.

Advantages

ETFs, give you access to a wide selection of securities across all sectors. Quite often there might be companies included that you would never find by yourself.
ETFs have usually a very low expense ratio and fewer broker commissions.
With ETFs, you diversify your portfolio and therefore lower the overall risk
There are quite targeted ETFs that let you invest into very narrow and certain sector.

Disadvantages

Some ETFs are actively managed which means they might have higher fees
It’s easy to choose very narrow ETFs and miss out on the portfolio diversification. Risk level stays high in that case.
Even though you can buy and sell ETFs just like stocks, low liquidity might slow down transactions. Investors buy ETFs with long time horizon and don’t want to sell them without a very good reason.

Fun fact: The very first ETF was SPDR S&P 500 ETF (SPY) which tracks SP500 index and allows you to invest in to 500 biggest companies in the US.

Basics of Investing

Risks of Investing

Basics of Investing

Getri
August 3
Basics of Investing

Most investments don’t have a guaranteed rate of return. All investments involve some degree of risk, some are considered riskier and others safer investments. The value of investments is influenced by many factors, such as economic and market conditions, government policy, interest rates, currency movements or inflation.

Why would anyone invest?

Over the longer term, the returns on investments are significantly higher than the rate of interest on cash. Investments made today are meant to pay rewards in the future. Investors also try to protect themselves against different types of risk when buying securities. At the moment we are living in a world where inflation is higher than what is considered “average” or “normal”. That means keeping money in your bank account is actually not a very good idea.

In order to build your wealth successfully, it’s important to have a certain strategy and familiarise yourself with potential risks. Each specific investment approach and product will have its own specific risks and those risks will vary. These are some types of risks. This is not an all-inclusive list.

Systemic risks are coming from the biggest companies in the world and if something happens with them then the ripple effect could affect almost all of the economy. For example, the 2008 global financial crisis resulted in almost all types of investment falling in value when the companies considered “too big to fail” started to fail. Governments use systemic risk as an excuse to intervene with the economy and limit the ripple effect when and if needed. In 2008 without the bailout of AIG, the ripple effect would have caused the collapse of many other financial institutions.
Non-systematic risks apply for risks that are specific for a certain company or sector. These risks can be reduced by investing in different sectors. An example of a non-systematic risk is a new provider in the market or a change in the regulatory framework.
Liquidity risks are the risks to a firm’s ability to pay back its debt. It’s always a good idea to check company’s cash flow and outstanding debts. Make sure they are generating enough cash to pay for all the bills or are planning to reach that point in sometime near future. When a company reaches a point where they don’t have enough available funds to cover short-term debts they are experiencing liquidity risk
Exchange rate risks are type of risks that come with overseas investments and foreign currencies. These risks are considerably higher when investing in emerging markets and are not fully avoidable. It is possible to mitigate these risks using currency futures or other similar financial products.
Inflation risks mean that over time money is losing its value. Inflation is a decrease in purchasing power – to make it clear 100 USD buys you less today compared to 3 years ago. For investors, fixed bonds are considered to be especially susceptible to this risk.
Interest rate risk is the possibility to decrease the value of your fixed-income investment if the overall interest rates go up. Interest rates affect many other investments but bonds are in the biggest risk. Often fixed-income investments offer a higher return to lower this risk.
Credit risks cover the risk that comes with the ability of the issuer to repay the funds or interest rate. This mostly applies for investments that promise some form of guaranteed payments. These kinds of securities are usually rated by credit agencies and the lower the grade, the higher the credit risk.
Social, political and legislative risks are types of risks that follow human behaviour or decision-making. For example, there could be a change in regulations for banks or a trading embargo with certain countries and their economy would suffer. Lately, the world is preparing to move towards green energy and this is a major change in the social sense that affects many sectors.

Risk and diversification

The most basic and effective strategy to minimise risk is diversification. Diversification means that you should not invest all of your funds into one certain investment but spread it around over multiple different investments. If one investment goes bad then you have risked all of your funds on one deal. But if you spread your funds on multiple different investments then you are better protected and might find the next big winner more easily. One of the most well-known comparisons is that it’s smart to invest in sunglasses and umbrellas. When it’s raining you’ll make money on umbrellas and when the weather changes and the sun comes out, then people will need sunglasses. This is the simplest example of diversification.

Diversification also means you should look toward different sectors. Let’s say for example that I invest all of my money into airlines. It does not matter what airline stocks I’m buying but if travelling is hindered by corona for example then all of the airlines will be losing their value. But if I try to diversify my portfolio and add energy and gaming investments for example then these 2 sectors are not that intertwined with airlines and won’t be in danger of the same risks. I have protected my investments and am not fully dependent on only tourism.

Diversification doesn’t ensure gains or guarantee against losses, it does provide the potential to improve returns based on your goals and target level of risk. There are always risks when making investments but it is possible to minimise most of the risks when you have the full picture of potential issues

Tags investing, risks of investing

Basics of Investing

How to diversify your portfolio

Post author By Getri
Post date 3. Aug 2022
No Comments on How to diversify your portfolio

Basics of Investing

Getri
August 3
Basics of Investing

Financial markets are usually a reflection of the underlying real-world economy. The economic reality is however constantly changing and is evident in the market price volatility. The movement in market prices causes unwanted or unpleasant portfolio swings. To some investors these short-term price fluctuations continue to cause unnecessary stress or bring out an instinct to terminate investment portfolio altogether.

Diversification, however, helps investors to navigate market downturns and keep on building their wealth. The market volatility of 2022 has demonstrated once again that diversification is an important part of portfolio management strategy and can reduce the overall risks. Regardless of the recent turmoil in markets, patient and intelligent investors know that holding diversified asset portfolios or even adding to their investments during a period of market upheaval, will turn out to be a profitable strategy.

To put it simply, diversification is a strategy of not holding all your eggs in one basket. Building a portfolio from a mix of stocks from different sectors or industries and other investments (such as thematic ETFs, bonds, or real estate) will help minimize market price impact on the overall returns as well as providing a better risk-adjusted returns.

Key Diversification Rules

According to Fidelity investments, diversification is a strategy of splitting the capital into smaller investments so that the overall exposure to any single asset is limited. This in turn will limit the negative impact of market price movements. Such a strategy helps to reduce the volatility of portfolio returns.

When building a diversified portfolio, it is important to construct it from different asset classes such as stocks, bonds, real estate, and commodities in order to have uncorrelated returns.

Another important aspect of diversification is to stay diversified within each asset class. For example, the concentration of a single investment should not be bigger than 3-5%. Moreover, the portfolio should consist of several different sectors or industries along with geographical diversification.

Diversification & Asset Classes

Diversification is often seen as portfolio allocation or splitting capital into different asset classes such as equities, bonds, commodities etc. Some market participants, however, argue that the principle of diversification can also be applied to a single asset class.

Let us assess this theory by using 4 asset classes: stocks, 10-year treasuries, gold and REITs (Real Estate Investment Trusts).

In the example above, investing in a diversified multi-asset class portfolio helps to reduce volatility and, in some cases, achieve a better risk-adjusted return as compared to investing in a single asset class portfolio.

Diversification In Practice

What does diversification look like in practice? There are a few steps that can help make this process manageable:

Setting up goals and plans. Firstly, it is important to determine the investment horizon or more simply, whether the portfolio will be held up for one year, three or more than five years. For short-term portfolios, investors should aim to have the least volatile instruments, usually consisting of fixed income like bonds or bond ETFs. Mid-term portfolios would have more asset classes like stocks, and precious metals. And long-term portfolios can absorb more risk, therefore more risky assets can take a bigger part in allocation. Equally important are the financial goals. An investor should be able to answer the question whether the capital needs to be preserved, grown or alternatively kept liquid.

Level of Risk. The risk appetite of the investor will determine how volatile the portfolio returns can be and how many asset classes it will consist of. If the investor is risk averse, he/she should seek to have more asset classes and more instruments within the portfolio and such an investor would probably find ETFs as a tool to achieve broad diversification within the individual asset classes and between them. A more risk- tolerant investor would aim to build a more concentrated portfolio that has fewer asset classes and is less diversified in instruments (up to 20-30). Such investors would prefer to pick instruments like stocks themselves or would want to use thematic and smart beta ETFs.

Monitoring and Rebalancing. Once a portfolio is constructed, the values of assets that are in the portfolio will change over time. This means that the initial portfolio structure will change once as some of the assets will grow in value and others decrease. Therefore, monitoring asset price changes and performing portfolio rebalancing is crucial to maintaining portfolio structure as initially planned.

By rebalancing, an investor sells the assets that have appreciated in value the most and buys those that have lost value in this way maintaining the original balance of assets in the portfolio.

Rebalancing is usually done annually or semi-annually. Again, it is highly individual and can be done at one’s own discretion. To keep up to date with asset value changes, investors must monitor their investments semi regularly.

Effective Ways to Diversify Investment Portfolio

To build a well-diversified portfolio from single stocks and bonds investors must have enough capital in order to secure a healthy asset balance from all constituents. However, not all investors have enough funds to do so, which leads us to the solution of ETFs.

ETFs are one of the fastest-growing investment products that enable retail investors to access highly diversified index portfolios in a cost-efficient way. ETFs can offer general indexes, sectors, themes, alternative asset classes and income strategies.

A single ETF unit gives a share of a well-diversified asset portfolio and through owning several different ETFs, a vast diversification is achieved.

Some ETFs are denominated in single or double digits which means that small investors can enjoy all the benefits of a well-diversified portfolio. ETFs allow investing both globally and locally into low-risk and high-risk assets and alternatives.

Conclusion

Diversification can help reduce asset price movements (namely volatility) because different asset classes or investments do not always move in the same direction over time. When one investment performs poorly, another part of the portfolio can perform positively, therefore, asset weights need to be balanced in order to get the best risk-adjusted returns.

Basics of Investing

Investing vs Trading

Basics of Investing

Getri
August 3
Basics of Investing

Everyone has heard the terms investing and trading, but the problem is that both the general public and the investment community usually cannot distinguish between these two activities.

Many people think that trading is investing and trading equals profits and high returns. However, this is extremely far from the truth and statistically, it is almost impossible for the average person to “trade” successfully. Trading is about market timing, having an opinion or vision on price movements, and “quick” profits which should follow if the opinion is validated by the market. Trading can also be described as speculating, there is a hope of price gain which might or might not realize depending on the market. In the short term, the market is a “voting machine” while it can be characterized as a “weighing machine” in the long term. The risk of losing the principal, or the money invested, is present for both trading and investing, regardless of the investment period.

Long-term investing has been the most sought after and the most successful tool in building wealth over the last century. Patience and the long-term nature of investing, however, makes it both elusive and difficult for the average investor. Trading, however, has been the most followed and the least successful tool in building wealth. Both include taking position in stocks or other financial and non-financial assets for a period of time. However, it is important to understand that the main difference is usually related to the preceding analysis and the time the position is held in the portfolio.

So, what is the main difference between investing and trading?

Very broadly put, investing is capital allocation in order to generate positive returns with the expectation of profits exceeding the initial investment. Investing is not a “bet” on short-term price fluctuation.

Another difference between „investing “and „trading“ is that investing is a more long-term strategy, while trading can be characterized as moving in and out of positions within months, weeks, days, or even minutes. Trading is mostly for those who seek quick returns in the stock market and ride the so-called “wave” or “trend.” Usually, they are the last ones holding the position and catch the end of a cycle.

According to the “traders” themselves, it is particularly important to understand the market movements and keep up with companies’ latest updates to know where the stock is moving and how to profit from this movement. Usually, the average transaction value for traders is lower since they tend to buy and sell more, if they lose, they aim to lose small and if they win, they usually win small. The biggest issue with trading successfully long/term are the transaction costs which tend to eat away the profitability of position taking.

As mentioned earlier, investing is a more long-term approach to wealth building. Often people invest with a 5-to-10-year time horizon. However, father of value investing, Warren Buffet, has said that the favourite holding period for a quality stock should be forever. There are many quality companies out there that have a long and rich history in growing their businesses and returning a steady increase in value for shareholders. Usually, investors try to keep around 10-20 stocks in their portfolio from different sectors and change out the ones where something fundamental in the company has changed (usually for the negative). Investing is less about market timing and more about business-like analysis. Adding 200 euros every month to your investment account and placing it smartly into the market will show very pleasant returns in 10+ years. Dollar cost averaging has been tremendously successful in wealth building throughout different economic periods.

In conclusion, investment activities are usually more time consuming as any sort of research is cumbersome. It is always easier to follow instinct, guess and buy-sell (trade) things on a hunch as compared to a more boring and calculative approach. As is with everything in life, usually investment (or trading) strategy is quite personal, however, the resulting success is less about personal choice and more about making the right choices.

Basics of Investing

How to keep calm during Market Volatility?

Post author By Getri
Post date 3. Aug 2022
No Comments on How to keep calm during Market Volatility?

Basics of Investing

Getri
August 3
Basics of Investing

What is market volatility? To answer briefly, it is when market prices change rapidly during a short period of time. It is impossible to discuss the market volatility without discussing both the negatives and positives.

The book “The Intelligent Investor” by Benjamin Graham says that the main risk concerning average investors is not the purchase of expensive stocks, but that of purchasing low-quality equities in the time of high business valuations. An example of this would have been last year. During favourable business conditions (end of a business cycle), investors view securities of inferior quality as safe due to recent earning announcements and optimistic projections. However, when business conditions change, the valuations change – leaving low-quality and speculative trades in bigger losses as compared to equities of strong and profitable companies This phenomenon has been documented throughout the stock market history (and is also evident by the first half of 2022), whereas the opposite has been true as well: equities bought at the time of unfavourable business conditions, with lowered valuations, lead to higher returns regardless of the composition of the portfolio. It seems, at least academically, that volatility can be investors’ best friend.

However, market price volatility can exhaust even the most emotionally strong and experienced investors. It can be very challenging to keep calm when your portfolio posts a positive or negative many times a week (although the positive return is, of course, pleasing to the eye). I am unfortunately also very familiar with the negative feelings, and it can be even tougher to see the value of your portfolio drop by 10-20% in a matter of weeks. One thing I always say (although not always successful in following my own advice) is that the value of companies does not change 20-50% in a matter of weeks. Value and price are different things as value is derived from the long-term prospects of the company, while prices are quoted in the short-term. Therefore, one way to keep calm is to ignore this short-term price volatility altogether. However, ignoring market movements is sometimes not an option.

Real estate and the stock market are very different places to invest, however, in the time of market volatility or short-term market downtrend, a comparison of these wildly different markets can be made. One way to compare real estate and the stock market is through the short-term fluctuations of apartment prices of apartments listed on the stock exchange (as companies are) the price would be quoted by them and it would fluctuate every hour, every day, and every month. The market price of an apartment could be then impacted by random variables (as are stock prices): expectations in the economic out-look, neighbourhoods, time of the year, winter cold etc.

Similar things are constantly happening to equity prices, completely random noise can drive the prices down or up of individual stocks as well as the overall market. A very big drop in the price of an apartment can happen if an apartment in close prox-imity comes up for sale at a very low price if the owner is forced to sell. Comparably this will impact other apartment prices in the neighbourhood, however, this will not impact the value of other apart-ments. It would of course make sense to buy the apartment for a bargain price. Or in other words, Volkswagen stock has plummeted more than 25% from the beginning of the year (as of 22.07.2022), but that does not mean that the value of the company has dropped by 25% because that is impossible. But what it means is that share prices of larger-than-life institutions cheaper are cheaper now than they were a year ago and are ready to be plucked by the long-term and results-orientated investor.

In conclusion, market volatility usually brings out very good investment opportunities and the recent downturn can be the best thing for a long-term investor and especially for the portfolio of a rational or “cool-headed” investor. However, it is also impossible to time the market successfully all the time as constantly waiting for a recession can make you miss tremendous market upturns. The same can be said while waiting for positive news during a recession in order to avoid catching a “falling knife”. How-ever, the best advice (as always) for market volatility comes not from me, but from Warren Buffet:

“Be fearful when others are greedy and be greedy when others are fearful”.

Basics of Investing

What is Investing?

Basics of Investing

Getri
August 3
Basics of Investing

Investing is to grow one’s money over time. An investment is defined simply as a financial asset or item acquired with the intention of generating income or recognition. It is the purchase of goods that are not consumed today but will be used to create wealth in the future or a financial asset purchased with the expectation that it will provide additional income or be sold at a higher cost price for a later profit.

The most basic way an investment works is when you buy an asset at a low price and sell that asset at a higher price. This type of return on investment is called capital gain. One way to make money is to earn returns by selling assets for a profit or realising capital gains when the value of an investment increases between the time you buy it and the time you sell it is called appreciation.

1. A share or stock can rise up when a company develops a hot new product that boosts sales, increases revenues, and raises the stock’s market value.

2. A corporate bond may appreciate if it pays 5% annual interest and the same company issues new bonds with only 4% interest, making yours more desirable.

3. A commodity such as Gold may appreciate as the US dollar loses value, increasing demand for Gold.

4. Because you renovated or repaired the property or because the neighbourhood became more desirable for young families with children, the value of your home or condominium may have increased.

Types Of Investment

If you are serious about investing in assets, it is better to hire a financial advisor to point you and help you determine which type of investments will help you meet your financial objectives.

Stocks

Stocks, also known as shares or equities, are perhaps the most well-known and basic type of investment. When you buy stock, you are purchasing a stake in a publicly traded company.

Annuities

Annuities can provide an additional source of income in retirement. However, while they are relatively less risky, they are not high in growth. As a result, investors view them as a supplement to their retirement savings rather than a primary source of funding.

Real Estate

You can make a real estate investment by purchasing a house, a building, or a plot of land. Real estate investments vary in risk and are affected by a wide range of factors, including crime rates, economic cycles, public school ratings, and the stability of local governments.

Commodities

Commodities are potentially high-risk investments. Futures and options investment frequently involve trading with borrowed money/funds, which increases your risk of failure. As a result, buying commodities is usually for more experienced investors.

Bonds

Bonds give investors the opportunity to “Become the Bank” When businesses and governments require capital, they borrow it from investors by issuing debt known as bonds. Not all bonds are “safe” investments, though. Some bonds are announced by companies with poor credit ratings, meaning they may be more likely to default on their repayment.

How to invest?

There are different providers from banks to individual professionals who can help you with investing. Fundvest mobile application is an easy-access tool, to grow your long-term wealth. We offer a wide range of stocks and ETFs and automated investing.

Investing ensures financial security both now and in the future. It enables you to increase your wealth while also outperforming inflation. You also reap the benefits of compounding. Furthermore, investments have the potential to help you achieve financial goals such as saving for retirement, purchasing a home, and creating an emergency fund, among others. It instils financial discipline because it requires you to set aside a certain amount each month or year for your investments.

Basics of Investing

What is Automated Investing?

Post author By Getri
Post date 3. Aug 2022
No Comments on What is Automated Investing?

Basics of Investing

Getri
August 3
Basics of Investing

Almost since the very beginning of the stock markets, there have been attempts to define some sort of strategies that would make automated trades for the investor, that would outsmart other market participants and bring back profits with no additional effort.

This is not what the Fundvest app offers. There is no new magical unique financial approach that nobody has tried before, that would be available only for our customers. No, what we offer is easier access to existing financial products that others have created before us. There is no snake oil or secret formula, there are just trusted securities, but you can buy them in an automated and simple manner.

For our automated investment plan, we offer a selection of financial products that are accessible from a public stock exchanges, that are not actively managed and that are working in a predictable way (although past performance is never a guarantee for future results). Let me shortly explain our thought process on this approach:

Accessible from public stock exchanges

We are offering ETFs (Exchange Traded Funds), that are available in public European stock exchanges, denominated in euros. Working with them is very similar to that of stocks, you buy, you sell, they change in value and some of them may pay dividends. There is nothing new to learn, no additional tips & tricks, and no new financial technologies to uncover. Simplicity and stability are key to our choice of offering.

Funds we offer are not actively managed

Any investment funds can be divided into two large groups – actively managed and passively managed. Actively managed funds are run by a team of people who are monitoring the markets daily and are constantly adjusting the content of the fund by buying or selling some assets. While passively managed funds have a defined formula, that is then used to make predictable decisions about the fund. There are still buying and selling ongoing, but it is passive, based on the initial plan, not by some person making decisions on the spot.

Both approaches have pros and cons and can be successfully used by investors in different situations. We have chosen passive funds, as they are much cheaper to run, there are no management fees that our customers would need to constantly pay and overall costs are smaller, as there is no large trading team needed to maintain the fund.

Funds are working in a predictable way

Our selected auto investment plan ETFs all can be classified as one or another type of “index fund”, which in turn means that the fund contains some other securities, that are available in a stock exchange, mostly stocks and bonds, and the decision of which exact security to purchase and in what quantities depends on a predefined “index”.

In an example scenario, if there is an index of top 50 stocks that constantly pay dividends, then it is possible for an index fund to exit that will be built in a way that it purchases stocks of those 50 companies only. And in a predefined proportion of each. And when new stock is added to top50 and another one is removed, then the index fund is adjusted as well.

There are very simple funds like that in our ETF list, and there are more complicated ones, but all of them follow the same principle of an underlying formula that they follow in a very predictable manner.

How automated investment plan works in Fundvest application

It has 3 main steps:

1) The user defines the plan – selects the ETFs to be purchased and defines the proportion between them. How much of each should be in your plan.

2) The user transfers the money to the auto investment account

3) Fundvest purchases units of each selected ETF, in a defined proportion for all the money that is available within the auto investment plan. If money is left over, as we purchase only whole units, then it is used next time new money is added to the plan.

The second point of money transfer to the account can be done manually, or customers can also set up automated payment in their bank, so new money is invested every month when they receive their salary.

This allows our users to invest in a predictable and simple funds, while still doing selection and decisions themselves.

Each of us have some preferences and some view of the future of the world. Somebody might want to do focus more on emerging markets, somebody else will like technology indexes, while yet another person will be all about biotech. And, as an example, keeping also some fund of very stable top world companies as a part of the plan

Basics of Investing

Definition

Sector investing vs. Thematic investing

How thematic investing works?

What are the benefits of thematic investing?

What are the disadvantages of thematic investing?

What thematic ETFs does Fundvest offers?

Basics of Investing

Pros and cons of ETFs

Basics of Investing

Why would anyone invest?

Risk and diversification

Basics of Investing

Key Diversification Rules

Diversification & Asset Classes

Diversification In Practice

Effective Ways to Diversify Investment Portfolio

Conclusion

Basics of Investing

So, what is the main difference between investing and trading?

Basics of Investing

Basics of Investing

Basics of Investing

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