The Simplewealth Investing Thesis
The Simplewealth Investing Thesis is quite simple really:
- Invest in the large players in the global economy,
- Systematically with diversified investments,
- Passively (rather than actively),
- Taking into account a client’s risk profile, investment objectives and investment horizon, while
- Keeping costs low to maximize returns.
Investing in the large players In the global economy
Do you believe (assuming no major war or zombie apocalypse!) that the global economy, with population growth and technological advancement, will be bigger in 10, 15 or 20 years’ time than it is today?
If yes, then why not invest in that global economy and share in the potential gains from that growth.
We believe that the global economy will be bigger over the long term and so we design our Portfolios to take advantage from that expected global growth. Our Portfolios also focus on the larger companies, which we expect to contribute more to such growth.
Systematically with diversified investments
We use a systematic investment approach that is a variation of Modern Portfolio Theory.
In summary, Modern Portfolio Theory recommends a diversified portfolio that is structured to seek possible returns taking into account the investor’s attitude to risk. It leads to the result that an investor seeking a higher expected return will need to have a higher tolerance to risk.
There are detailed mathematical equations behind Modern Portfolio Theory and they are all available on Wikipedia if you wish to understand this theory further.
A core component of Modern Portfolio Theory is diversification. This means that we invest, through ETFs, in lots of different companies and bonds to spread investment risk. By investing in lots of different companies and bonds this means that our returns will be the average of all of those companies and bonds. We do not gamble or take chances with your money on single companies.
We invest in ETFs (Exchange Traded Funds) because they are listed on stock markets. This means that there is continuous pricing and liquidity. Continuous pricing ensures that you know the correct value of your account every day. Liquidity means that your investments can be bought and sold easily. We also use ETFs because these can have tax efficiencies.
Passively (rather than actively)
We use indexing to invest in the big companies in the global markets. This is commonly called passive investing. The alternative is called active investing – actively selecting stocks that you think will increase in value.
Why we don’t try to be an active manager
- The goal of an active manager is to try to outperform market indices. However, many studies and yearly reports show that “average” active managers underperform the market after fees and costs. Therefore, to outperform the markets and add value to our clients as an active manager every year, we would need to ensure that we were an “above average” active manager every year.
- We know from the data (and from our experience of clients of active managers) that just because an active manager may be successful one year does not mean that they would be a successful manager in a subsequent year or years. Accordingly, we do not try to do this.
- We want our clients to grow their money – not take a chance on our stock picking ability. Accordingly, we have designed our Robo-Adviser Platform to follow the global markets and offer our clients the returns that the global markets provide.
- Furthermore, in his book The Future of Investment Management, published by the CFA Research Institute, Ronald N Kahn, after considering the differences between active and passive investment approaches concludes that “Indexing does not seem to face systematic risks” (page 108).
Taking into account a client’s risk profile, investment objectives and investment horizon
It is important to us that we design your Portfolio in accordance with your:
- Risk Profile – this is your attitude to risk
- Investment Objectives – this is what you are investing for
- Investment Horizon – this is how long you are investing for
That is why we need to ask you a lot of questions about your financial situation and attitude to risk when you open an account with us.
For example: Are you happy with volatility (being the market ups and downs) in the search for higher returns? Or do you prefer to seek lower volatility and will be happy with lower returns so long as there are lower risks to losing any money? Each person is different and so it is important for us to know what your attitude to risk is.
We will also design your portfolio differently if you are wanting to growth your wealth to support your retirement in 20-40 years or if you are wanting to save to buy your first house within the next 1-5 years.
Keeping costs low to maximize returns
Low fees enable you to keep more of your more money!
Every extra Franc that you spend on fees is one less Franc in your investment account.
Accordingly, every extra Franc that we can help you keep in your investment account is another Franc that can help your account compound and grow.
Consider the following example:
You wish to open an investment account and you make an initial investment of: CHF 25,000. In each subsequent year, you make an additional deposit of: CHF 10,000.
You invest for 15 years and receive a return of 5% every year.
You can invest with Simplewealth with fees of 0.5% or you can chose another manager that charges 1.5%.
Over 15 years, your account with Simplewealth would be worth: CHF 245,942. In contrast, your investment with the other manager would be worth: CHF 224,080.
Therefore the low Simplewealth fees have saved you CHF 21,862 over 15 years!
Simplewealth. Your Investment Your Future.