Ethical Funds

Hedge Funds

Balanced funds

Fixed Income Funds

Equity Funds

More funds

Index Funds – Part 2

Index Funds

The Compound Effect

Is There Really No Place Like Home?

ETHICAL FUNDS

Ethical Funds

 

An ethical fund is a fund that invests in accordance with different ethical values. These types of funds are usually a type of equity fund, and their common name is SRI (Socially Responsible Investments).

By Viktor, co-founder of Bifrost - Aug 21 2019

ETHICAL FUNDS

 

An ethical fund is a fund that invests in accordance with different ethical values. These types of funds are usually a type of equity fund, and their common name is SRI (Socially Responsible Investments).

 

The companies in which the funds invest thus comply with international norms and guidelines in human rights, working conditions, environment, and corruption. An ethical fund is suitable for those who want to take a stand and help influence companies to become more sustainable and ethical.

 

Normal equity funds also have ethical rules they must follow, but ethical funds have stricter rules. It is therefore important that ethical funds have a clear investment policy and information about the criteria that apply when investing.

 

Positive and Negative Screening

 

To choose its investments ethical funds have different screening methods. These are either a positive or negative screening.

 

Positive Screening: e.g. Companies should have environmental considerations and work for increased equality (the companies work consciously to improve society).

 

Negative Screening: e.g. Avoid companies in the arms, tobacco or alcohol industries (companies have a negative impact on the individual and society). 

 

Should you only have ethical funds in your portfolio?

 

Yes, you can if you want.

 

However, be aware that ethical funds are usually equity funds, which involves high risk. If you do not want to take a high risk, you can combine ethical funds with fixed income funds (which lower your risk, but also your potential return).

 

Also, it can differentiate a lot between different ethical funds, while some are basically the same - so read on carefully before buying an ethical fund so you know exactly what it is you're saving for.

 

Important things to think about with an ethical foundation

 

As mentioned, ethical funds can differ greatly, which means that fees, risk levels, and potential returns vary widely and depend entirely on how the fund invests capital.

 

Therefore, you should always read very carefully before choosing to start saving in an ethical fund (or any other type of fund). It may also be a good idea to keep an eye on how the fund allocates the capital on an ongoing basis so that they adhere to the guidelines and regulations that have been set up.

 

The most common type of ethical funds are equity funds, but they can also be fixed-income funds, hedge funds, and mixed funds. This also means that their investment strategy can vary widely. Therefore, be sure to find an ethical fund that fits your investment philosophy.

 

In addition, we all have different opinions of what is ethical and what’s not, which is why it’s important to read about the funds so that you are sure that they are in line with your own values ​​and have the same view of ethics as you have.

 

Viktor

 

HEDGE FUNDS

Hedge Funds

 

A hedge fund is a fund with freer investment rules whose goal is to create a positive return regardless of how the market develops (so-called absolute return).

By Viktor, co-founder of Bifrost - Aug 12 2019

HEDGE FUNDS

A hedge fund is a fund with freer investment rules whose goal is to create a positive return regardless of how the market develops (so-called absolute return). They are also called market-neutral funds and were created to reduce the risk and protect the capital.

 

This type of fund is often advertised as a way to increase the portfolio's return while reducing risk. This is a difficult task, as a certain level of risk is required to generate returns. And the fact is that hedge funds as a group have not performed particularly well in recent years, and therefore received a lot of criticism.

 

Hedge funds are quite special, and the fact is that much can be different between different hedge funds. The fund's strategy controls the level of risk in the fund, and there are hedge funds with high risk but also those with low risk.

 

The management fee for a hedge fund is generally high, and additional fees may also be added depending on how well the fund performs. It is common for a large part of the total fees to be charged in the form of a so-called performance-based fee.

 

What types of hedge funds are there?

 

As I mentioned, there are a variety of different types of hedge funds, and the fact that they have very free placement rules makes it very difficult to mention all different types.

 

We would like to avoid generalizing because there is such a large variation in how a hedge fund can be structured.

 

However, if you would like to know more about what types hedge funds exist, then you can go into your bank or online broker and check which hedge funds are available there. Skim through them and read the concise version of what their overall strategy is. That way you should get a pretty good picture of which options are available to choose from.

 

Important things to consider with a hedge fund

 

They are generally expensive when it comes to the annual management fee. The majority of all hedge funds also have a performance-based fee, for example. whether they hit a benchmark or perform better than the fund's history.

 

Therefore, be sure to pay extra attention to the size of the fee, as well as any additional charges that may apply depending on whether different conditions are met. It is important to keep down the costs in the long-term, as the compounding effect applies to fees as well as gains.

 

You have to be careful when reading about hedge funds because they differ so much. They can have very different strategies and risk levels, and therefore your research becomes much more important than when, for example, you look at a stock or a fixed income fund.

 

Viktor

 

Balanced Funds

Balanced Funds

 

A balanced fund is a fund that invests in both equities and interest-bearing securities. The percentage distribution between the fund's share portion and interest rate varies between different balanced funds. Therefore, balanced funds generally have a lower risk than equity funds, but a higher risk than fixed income funds. 

By Viktor, co-founder of Bifrost - Apr 09 2019

Balanced Funds

 

A balanced fund is a fund that invests in both equities and interest-bearing securities.

 

The percentage distribution between the fund's share portion and interest rate varies between different balanced funds, and it may also vary over time within the same fund. Therefore, read what applies to the particular fund (s) that you find interesting.

This type of fund generally has a lower risk than equity funds, but a higher risk than fixed income funds. In a balanced fund, you combine a high expected return and higher risk (the share portion) with a lower expected return and lower risk (the interest portion).

What types of balanced funds are there?

What can usually set apart different balanced funds is the percentage distribution among the share portion and the interest portion of the fund.

But of course, it can also be what specific types of shares the fund owns in the share portion, and what interest-bearing securities the fund owns in the interest portion.

You should, therefore, as always, carefully read about what applies to the specific fund (s) that you find interesting and choose to look closer at.

Should one only have balanced funds in his portfolio?

When we as investors choose to create a portfolio, we should think about spreading our risks so that we are not particularly vulnerable if something occurs in an individual holding.

What is good about balanced funds is that they have a form of embedded risk diversification in the fund itself, since they own both shares and interest-bearing securities. This means that the risk decreases somewhat compared to an equity fund, while at the same time provide a potential opportunity for a higher return compared with an interest fund.

You can therefore only have balanced funds in your portfolio if you feel like it, but you can just as easily buy yourself into common equity funds and fixed income funds and choose percentage distribution yourself, and thus create your own balanced fund.

Important things to consider with a balanced fund!

It is not uncommon for the management fee of a balanced fund to be unreasonably high in relation to the total return and the risk taken (although the fees have been squeezed down some over the past few years).

The fund offering is large and there are balanced funds that offer good opportunities for good returns, but there are also those who are not worth the administration fee that you pay each year.

 

When the stock market is strong, balanced funds will most likely not go up as much and not as quickly, because they contain an interest-bearing part that does not yield such high returns. But on the other hand, it will not lose as much in value when the stock market goes down.

 

Viktor

 

Fixed Income Funds

Fixed Income Funds

 

A fixed income fund is a fund that invests in interest-bearing securities, e.g. bonds and treasury bills. They are associated with low risk, but this, in turn, means that fixed income funds usually give a very low return.

By Viktor, co-founder of Bifrost - Mar 20 2019

Fixed Income Funds

 

A fixed income fund is a fund that invests in interest-bearing securities, e.g., bonds and treasury bills.

They are associated with low risk (and are therefore often used when you want to preserve the capital you have), but this, in turn, means that fixed income funds usually give a very low return.

Thus, fixed income funds are safer than, for example. equity funds, which generally have a significantly higher risk (and which therefore give a higher expected return).

However, it is worth noting that fixed income funds can have an increased risk depending on the type of fixed income fund you choose and how the interest rate climate in the economy looks like. But in general, fixed income funds are considered an investment alternative with (very) low risk.

What types of fixed income funds are there?

Different fixed income funds invest in interest-bearing securities with varying maturities, and thus they are suitable for different investors, depending on how long the investor has intended to own the fund.

A short-term fixed income fund places the money in securities with a maturity that is less than five years. This type of fixed income fund is most suitable for short-term investments because the interest rate changes on the market affect the fund's value relatively little. It is reminiscent of a regular savings account and thus has very low risk.

An intermediate-term fixed income fund invests in securities with a maturity that is between 5 – 10 years. The risk level is between the long- and short-term because it is more sensitive than a short-term fund but less than a long-term fund.

A long-term fixed income fund invests in securities with a maturity that is longer than ten years. This type of fixed income fund is most suitable for longer-term savings as the interest rate changes affect the fund's value to a greater extent. The risk level is relatively low, but it is somewhat higher than for short-term fixed income funds, as the value of the fund may fluctuate slightly more.

Should one only have fixed income funds in his portfolio?

If you are a cautious investor who does not want to take such a high risk in your investments, you should have a large proportion of fixed income funds in your portfolio, as these funds are associated with very low risk. But then you should also be aware that it will most likely give you a very low return as well.

However, if you are prepared to take a slightly higher risk and have a long-term savings horizon (preferably at least five years), it may be a good idea to also have equity funds in the portfolio - to increase the expected return.

A good combination is to have both equity funds and fixed income funds in the portfolio.

Important things to consider with fixed income funds

You will not get a particularly high return if you own fixed income funds, but on the other hand you will not lose so much because there is very low risk in this type of fund.

However, a long-term investor should keep down the share of fixed income funds in their portfolio, as they, as mentioned, give a low return. When investing in the long-term, it is a wise idea to have equity funds because they have a higher expected return over time, which means that the compound effect will do wonders for your performance.

Viktor

 

Equity Funds

Equity Funds

 

An equity fund is as the name suggests, a fund that primarily invests in shares/stocks. You can never know in advance what returns you will get when you invest in an equity fund, but historically, stocks have been the best performing asset class when investing in the long term. 

By Viktor, co-founder of Bifrost - Mar 04 2019

Equity Funds

Because of this high performance, equity funds are associated with high risk (since stocks are risky), but since shares show a good historical return, there is still a good reason to have equity funds as part of long-term of a long-term portfolio.

What types of equity funds are there?

There are lots of different types of equity funds, and both investment focus and risk level can differ a lot. Equity funds usually have some form of explicit focus or strategy when they invest. The different focus and approach used, are often reflected in fund’s fees, also called management fee. A more actively managed fund with a more complex strategy will in general result in higher fees, but this is not always the case.

Two common directions of the focus and strategy are geographical areas (e.g. UK, Europe, North America) and industries (e.g. real estate, technology, pharmaceuticals). But there are several other types of orientations and strategies, so it is important to read what applies to the specific fund that you are interested in.

The majority of all index funds are equity funds, which then follow a specific index to create an equivalent total return. Read the blog post about Index funds for more information!

Should one only have equity funds in the portfolio?

A long-term investor who does not need the money for at least five years (preferably longer) can advantageously have equity funds in their portfolio, this because the stock market tends to always move upwards in the long run.

However, it can be shaky from time to time, and therefore it is not a good idea to only have equity funds if you do not like to take too much risk. You can choose yourself the level of equity funds that you are comfortable to have in your portfolio. Some investors, for example, split their portfolio in equity funds and fixed income funds to lower the overall risk.

Important things to consider with a stock fund

When you choose to save money in an equity fund, it is important that it is money that you can "live without." You should of course not expect your investment to lose a large part of its value, but the idea is that the money you invest should be money you can live without in your everyday life. This way you will be able to spend time in the market increasing your chances of a higher return.

You should also take a look at the fund's fee (management fee) to see how high it is and compare it with other similar funds to get an idea of whether it is a reasonable level. The fee should, of course, be as low as possible, but sometimes it can be justified with a higher fee. The best way to find out if you’re paying to much or not is merely to compare the fund to similar funds.

 

Viktor

More FUNds (2)

More FUNds

 

For the past weeks we’ve focused on Index funds, however, there are many other different types of funds that an investor should look at. This week I will, therefore, go through Equity, fixed income, balanced, hedge, and ethical funds. 

By Viktor, co-founder of Bifrost - Feb 20 2019

More FUNds (2)

Equity funds

An equity fund is a fund that primarily invests the fund's total assets in shares. The funds usually contain at least shares from 16 different companies. Equity funds may have different focuses, for example, British funds that only invest the money in shares from British companies and industry funds that only invest in shares in a single industry.

 

Fixed income funds

A fixed income fund is a fund that invests the fund's wealth in interest-bearing notes, i.e., in bonds and treasury bills. There are both short and long-term fixed income funds. The difference is that the short-term interest rate funds, called money market funds or liquidity funds, invest the money in securities with a shorter maturity than one year. The long-term fixed income funds, the so-called bond funds, invest the money in securities that last longer than one year.

 

Balanced funds

Mixed funds are, as can be heard from the name, are funds that mix both shares and interest-bearing paper. There are various variations on blends, such as 50/50 that have half of each, or blends with two-thirds of shares and one-third of interest-bearing paper, or vice versa. An example of mixed funds is the generation funds that are becoming increasingly common. They have a high proportion of shares at the beginning and the more the pension approaches, the more interest-bearing paper and the smaller the shares it will be in the fund.

 

Index funds

An index fund is a fund that follows the development of a particular index. For example, there are funds that follow the FTSE 100 index. These funds follow the development of the 100 most valued shares on the London Stock Exchange.

 

Hedge funds

A hedge fund aims to profit even when there are tough times. Hedge means protection and hedging means protecting against unexpected changes in the market. The risk varies depending on which hedge fund you choose.

 

Ethical Funds

An ethical fund invests based on special ethical requirements. They can, for example, invest in shares from companies that work actively with sustainability, or refuse to invest in shares from companies operational in military, tobacco, and alcohol.

 

Viktor

Index Funds Pros & Cons (1)

Index funds - Part 2

 

Last week we look at what an index fund is. This week we’ll take a look at how you can diversify your investments in index funds and some of the pros and cons.

 

By Viktor, co-founder of Bifrost - Feb 11 2019

Index Funds Pros & Cons (1)

Different index funds

By choosing which index funds you want to invest in, you can easily choose which markets you want exposure to. Perhaps you have a feeling that the United States is on the rise and you want to expose yourself to their stock market without putting any time into getting acquainted with different industries or companies. For example, an index fund that follows Nasdaq can be good to look at. Nasdaq has a lot of different indexes where you can look at specific industries. Then there is also an index in the US called S&P 500, which contains the 500 most traded companies in the country. This provides a very comprehensive picture of the entire economy's development in the United States.

 

 Good and bad with index funds

If we look at the advantages and disadvantages of index funds, it is about time to highlight the cost-effectiveness as one of the advantages. Some are even free. They are not actively managed like an equity fund and thus have lower costs for the bank. Many banks offer these index funds for free to bring in new customers with the hope that they will eventually lose patience and want to grow their capital faster than possible with index funds and start investing in some of the bank's actively managed funds.

Another advantage of index funds is transparency. An index fund is very simple, not to say crystal clear when it comes to you as an investor to see if you got the right price development for your money.

However, an index fund can look rather boring from an investment perspective. Take for example the FTSE 100. Here are the 100 most valued companies are included. These companies have been on the stock exchange for many years. It is unlikely that some of these companies will do anything revolutionary that will make the course soar. Instead, they will probably be quite stable. They will make reasonable dividends and invest gently. Companies that are young, innovative and who can present ideas that for stock markets to go up 60% in a week do not exist here. In the long term, they can be there, but then the market has already taken part of that upswing and when the company ends up on the FTSE 100, it is a mature company that just like its index siblings will have a fairly predictable time on the stock exchange.

Finally, it may be good to be cautious about the weight of the various companies in an index. OMXS30, for example, which is the main index in Sweden, had 40% of its weight in Ericsson in the early 2000s. This means that the index becomes very dependent on how it goes for that particular company. This undermines the purpose of the index, which was to reflect the entire stock market or to provide a cross-section of the stock exchange, market, or industry. This directly affects index funds whose idea is to follow the index.

 

If you believe in the stock market as an investment platform over time, but you want to sit back and relax - then it may be time to take a closer look at index funds. 

 

 

Viktor

Index Funds (1)

Index funds - a self-propelled investment

 

In this post, we will take a closer look index funds. What is an index fund? How does an index fund work? And how do they differ from an equity fund?

 

By Viktor, co-founder of Bifrost - Feb 7 2019

Index Funds (1)

What is an index?

Before we dig ourselves deep into different types of index funds, we must understand the concept. What is an index? An index is a list of several financial instruments, such as shares, fixed income securities, currencies, etc. The index aims to show the aggregated price movement of the instruments included in the index. One of the more common indices in the UK is The Financial Times Stock Exchange, FTSE 100, which includes the 100 most valued companies on the London Stock Exchange.

How does an index fund work?

An index fund aims to develop in line with the index it follows. An index fund for the FTSE100, for example, will yield the same return as the index's movements. However, minus the low management fees. There are a lot of stories about how an investment on the stock exchange in general beats any other forms of saving. And that the stock market tends to rise in the long term. One can see investment in an index fund as just that - an investment in the stock exchange. There are, after all, a quite large number of stories about fund managers who in the long run never performs better than the Stock market. So, a long-term investment in an index fund may be a good idea!

How does an index fund differ from an equity fund?

If you compare an index fund with an equity fund, there is a concrete difference. An equity fund is actively managed by buying and selling assets. The purpose is to beat the index and to give as high a return as possible to the risk the fund owner wants to take. An index fund is not actively managed but simply sits on the index shares in wet and dry. The purpose here is, as stated, to give the fund owner the same return as the index it mirrors.

Index Fund as part of the portfolio

An index fund is suitable for anyone who wants to invest in the stock market without actively managing a portfolio. However, there are more fun funds to invest in for those who do not want to work actively with the portfolio. But the index fund can also reduce individual companies' unexpected price declines by diluting these among the other companies.

 

Next week we’ll take a closer look at different index funds and some of the pros and cons.

 

 

Viktor

The Compound effect

The Compound Effect

 

Albert Einstein is said to have said that the compound effect is the eighth wonder of the world. I am prepared to agree, but what is the compound effect and why is it classified as a miracle?

 

By Viktor, co-founder of Bifrost - Jan 28 2019

The Compound effect

I shall illustrate this with a calculation example.

Imagine you have £1000 in a savings account, you get 10% interest on your money annually (impossible in practice at present as the highest interest rate the banks offer on savings accounts is about a few percents, but it will be easy and clear in the example). You will keep the money in the savings account for 10 years and the interest rate during these years will be a constant 10%.

How much money do you have after 10 years? Anyone who is not familiar the compound effect would probably have answered £2000. Because 10% of £1000 is £100, and that times 10 years gives us £1000 + £1000 = £2000.

But this is not how it works in real life. The actual result would have been:

 

Year 1 £1000 * 1.10 = £1100     Yield: £100

Year 2 £1100 * 1.10 = £1210     Yield: £110

Year 3 £1210 * 1.10 = £1331     Yield: £121

 

Thus, the interest rate we get increases for each year, and it also increases faster and faster because the amount that is being repaid each year becomes larger. And after 10 years the sum would have grown to £2594. (£1000 * 1.1 ^ 10)

This is a considerably higher sum than you probably imagined, and if we had saved the money for another 10 years, the sum would instead have been: £6727 (£1000 * 1.1 ^ 20). This is why you can call the compound effect for the world's eighth wonder. Every year, it increases faster and faster. The 21st year gives them 10% us £673, which is almost 7 times as much as year 1. Now try to figure out for yourself what the money would have grown to if we kept them for another 10 years (1000 * 1.1 ^ 30).

 

So, with this knowledge, don't let your money be unemployed. Put them to work and let the compound effect help you reach your goals and fulfill your dreams. Though, putting money to work and using the compound effect can be done in more ways than through a savings account. You can, among other things, buy shares or funds if you are prepared to take a risk with your money, this can also generate a higher return because we know that risk and return always go hand in hand. As explained in the previous blog post about Investment and Risk.

pexels-photo-414916

Is There Really No Place Like Home?

 

Emotions is something which should stay out of investment decisions as it often leads to human biases, which in turn can be harmful for the investments. The bias investors experience the most is home bias; a tendency to favor investments that are familiar.

 

By Martina, co-founder of Bifrost - Jan 24 2019

pexels-photo-414916

What is Home Bias?

Home bias is a type of bias an investor has when investments, such as bonds and shares, are favored and invested in a large number of domestic equities. With the multitude of variations, people are drawn towards the familiar as it seems inherently less risky. However, by putting all eggs in one basket, the risk actually increases. This is because of the correlation between a company’s performance in shares and the domestic market it operates in. Thus, less risk and larger return can be achieved through diversifying investments.

 

Diversification

Diversification aims at maximizing returns by investing in different countries, asset types, and industries. There are multiple benefits of choosing a mix of investments, and the key to long-term investment success lays in maintaining that mix. The main benefits of a diversified portfolio is not necessarily to boost performance, but to target a risk level based on time horizon, tolerance of volatility, and goals which could result in higher returns. When an investor does not diversify their investments, they will not only have higher risks, but they may also miss opportunities in faster-growing markets. Despite the many benefits of diversification, a large number of investors in all levels of experience still invest heavily in their domestic market.

 

Reasons why people are biased?

One major reason why investors make biased decisions is the difficulties in making foreign investments, including transaction costs and legal restrictions. Another reason which fosters bias is the sense of familiarity, where investors tend to favour the known over the unknown. One reason for this is that a lot of investors believe that their own country will deliver large returns. Another reason is the global uncertainty regarding the political-, economical-, and societal landscapes.

 

The home bias is a phenomenon common all over the world. An academic study from the 1980s showed how Swedes would put almost all their money into the Swedish market, despite the capitalization representing only about 1% of the world.

 

Expand Opportunities

In order to overcome this home bias, one must begin looking into foreign investment opportunities. This goes beyond looking into multinational corporations as their performance is still quite tied to the domestic market. There are industries, such as health and transportation, which are doing well all over the world and knowing in which country these will foster over the next years is impossible. Thus, owning investments in these industries all over the world will improve the chances of investment success. The best investment success can be achieved by increasing our opportunities, rather than limiting them.

pexels-photo-414916

Is There Really No Place Like Home?

Is There Really No Place Like Home?

 

Emotions is something which should stay out of investment decisions as it often leads to human biases, which in turn can be harmful for the investments. The bias investors experience the most is home bias; a tendency to favor investments that are familiar.

 

By Martina, co-founder of Bifrost - Jan 24 2019

pexels-photo-414916

What is Home Bias?

Home bias is a type of bias an investor has when investments, such as bonds and shares, are favored and invested in a large number of domestic equities. With the multitude of variations, people are drawn towards the familiar as it seems inherently less risky. However, by putting all eggs in one basket, the risk actually increases. This is because of the correlation between a company’s performance in shares and the domestic market it operates in. Thus, less risk and larger return can be achieved through diversifying investments.

 

Diversification

Diversification aims at maximizing returns by investing in different countries, asset types, and industries. There are multiple benefits of choosing a mix of investments, and the key to long-term investment success lays in maintaining that mix. The main benefits of a diversified portfolio is not necessarily to boost performance, but to target a risk level based on time horizon, tolerance of volatility, and goals which could result in higher returns. When an investor does not diversify their investments, they will not only have higher risks, but they may also miss opportunities in faster-growing markets. Despite the many benefits of diversification, a large number of investors in all levels of experience still invest heavily in their domestic market.

 

Reasons why people are biased?

One major reason why investors make biased decisions is the difficulties in making foreign investments, including transaction costs and legal restrictions. Another reason which fosters bias is the sense of familiarity, where investors tend to favour the known over the unknown. One reason for this is that a lot of investors believe that their own country will deliver large returns. Another reason is the global uncertainty regarding the political-, economical-, and societal landscapes.

 

The home bias is a phenomenon common all over the world. An academic study from the 1980s showed how Swedes would put almost all their money into the Swedish market, despite the capitalization representing only about 1% of the world.

 

Expand Opportunities

In order to overcome this home bias, one must begin looking into foreign investment opportunities. This goes beyond looking into multinational corporations as their performance is still quite tied to the domestic market. There are industries, such as health and transportation, which are doing well all over the world and knowing in which country these will foster over the next years is impossible. Thus, owning investments in these industries all over the world will improve the chances of investment success. The best investment success can be achieved by increasing our opportunities, rather than limiting them.

kids-girl-pencil-drawing-159823

How to Create Young Financial Geniuses – pt 1

HOW TO CREATE YOUNG FINANCIAL GENIUSES - PT 1

It begins at home! Finance is something which we are surrounded by and interact with on a daily basis. Yet, many people don’t learn about personal financing until they have already entered adulthood, due to its common negligence in school curriculum. Thus, it is the responsibility of parents and guardians to educate and prepare our children for the future.

By Martina, co-founder of Bifrost - Oct 29 2018

kids-girl-pencil-drawing-159823

What is money and how does it work as a medium of exchange in society? Kids begin exploring questions like these from a very young age. The concept of money is largely introduced in the homes and it develops into understanding of earnings, budgeting, and investing. As kids grow up, the basic counting knowledge of 3-5 year-olds turns into understanding of loans around senior year of high school to prepare for university studies. There are many financial terms to learn, and to avoid it being too overwhelming, while preserving the interest in the subject, it is important to consider the timing of when to introduce these topics. Talking about credit reports with a four-year-old might be a bit excessive.



Financial Literacy

The possession of skills and knowledge to make effective and informed financial decisions is known as financial literacy. The focus tend to be on personal financial education, rather than viewing the inabilities of many to manage their own finances as a broader social concern. Taking into account the successive financial scandals, such as the 2008 financial crisis, it would be preposterous to blame the individual. Therefore, it is argued that financial literacy should include bank and governmental behaviours as well.



Parents’ and Guardians’ Responsibility

While literacy is a fundamental part of the education system, financial literacy is often left out. However, there is a movement to include more finance-related courses through elementary- to high school. Yet, parents and guardians remain the primary educators in teaching children the necessary skills and knowledge to develop strong and life-long financial expertise.

 

Many adults avoid this responsibility as they themselves are unsure about their own finances. More than eight in ten parents believe it is of high importance to teach children about money, yet one in six are not comfortable initiating this conversation. The experiences and perspectives held by parents is something which children do not have. Thus, sharing this knowledge, regardless of your confidence and expertise of personal finance, will provide basic financial insights and initiate the money conversation. Money, like many other subjects, will to an extent be discussed outside of the home; commonly with friends and through social media. This may seem harmless, but there is a risk of misinformation. Thus, it is important to carry out this discussion in the home, and there are many ways to educate your children about finance. Financial experts recommend two things; to start early and to talk often.



Allowance

To provide children with an allowance can have many benefits, including the knowledge of budgeting. Budgeting is a fundamental concept in personal financing and by providing kids with an allowance, it will teach them how to handle their own finances and plan for larger purchases. However, deciding the amount to give the children as well as what will be paid for directly by the parents, can be a difficult decision to make. These decisions will be unique to each family depending on their own financial standing as well as their goals.

 

Clothing could be a good starting point; where you asses how much you spend on clothing for your children, then provide that money in allowance so that they can spend it on clothes as they wish. This is a simple starting point and can be integrated to other products or services as well, including cell phones, social activities and travels. It is important to be completely clear about what the allowance covers. In regards to clothes, does that include sports wear and school uniform, or is it strictly leisure clothes? To make certain restrictions on what is not allowed to purchase may be of interest as well.

 

It will take time for the child to learn how to budget. Therefore, it is important to consider the time scope. A year long allowance may result in all money running out by the first few months. Therefore, a good idea is to start off with frequent payouts and then begin spreading them out over time. It is recommended to start giving your kids an allowance when they begin grasping the concept of it, which is around five years of age. This will introduce them to the concept of money and budgeting at an early stage.

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October is a Spooky Month for Investors

OCTOBER IS A SPOOKY MONTH FOR INVESTORS

Halloween season is here, and that means we’re in a historical month for stock market crashes. The Great Crash of October 1929 (Black Monday) and the 23-percent one-day crash of October 19th 1989 (Black Tuesday), to mention a few. October is associated with some scary memories of investors.

By Martina, co-founder of Bifrost - Oct 22 2018

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Boo! October is here. One of the most feared months in the financial calendar, known as the October effect. A theory regarding stocks declining during this month. It is mainly considered a psychological expectation rather than an actual phenomenon, but there are past examples supporting the theory. These events are, however, few although bearing large consequences.

 

The events which have given October it’s bad reputation over the past century include:

 

The Panic of 1907 (October 1907) - The first global financial crisis of the 20th century which led to the creation of the Federal Reserve System by inspiring the monetary reform movement.

 

Black Tuesday, Thursday and Monday (October 1929) - The Great Depression, affected by a crash in the stock market, lasted for 10 years and left a big mark on the world. Central banks have since learned and gained knowledge of how to utilize monetary policies to manage the economy in order to prevent an event like this to occur again.

 

Black Monday (October 1987) - One of the largest one-day market crash in history, where the Dow lost its value  by 22.6% on October 19th. As a result, a system of circuit breakers was implemented to prevent stocks which plummet too quickly from being traded.

 

These events have cause traders to be particularly nervous in the month of October. This October, the S&P 500 dropped 5% in hours with an average down of 4% at the end of the second week of October. The market did, however, rise 2% last Tuesday. The uncertainty still remains with little over a week left of this month. Especially considering the rising anxiety about the looming trade war with China.

 

Why October? According to market historians, the financial woes could be linked to the crop cycles. October meant harvest season and thus large amounts of money would leave the banks for purchasing of food and grains, resulting in pressures on the financial markets. Consequenting in a higher vulnerability to panics.

 

However, this does not explain the modern October phenomenon. Instead, some argue that the harvesting season has been replaced by the earnings season. In October, a majority of public traded companies release their 3rd quarterly earning report and provide outlooks for the 4th quarter as well as the upcoming fiscal year. These reports provide information on corporate profitability, and thus insights on the state of the economy. In other words, if an economy is growing, that should be reflected in the companies’ revenue streams. For our current market insights, this October is reporting a strong third quarter.

 

In fact, there have been more historical downs occurring in the month of September. For example, The Financial Crisis of 2008, the worst economic disaster since The Great Depression of 1929, began with the bankruptcy of the Lehman Brothers on September 15, 2007.

 

Despite the positive outlooks of the latest quarterly reports, financial headlines keep warning us about the stock market heading towards another crash. Historically, we are currently in one of the longest-running bull market with over nine years and counting. The household wealth is exceeding the household income, which could be signaling another crash. In the UK, the British households grow less confident about their finances as the October earnings from employment rose at its weakest rate since February. This is just one out of many examples which should alarm anyone with substantial amount of personal wealth in stocks. The bull market will eventually reach an end, and the question is when?

 

One of the most effective ways to avoid severe consequences when the market is churning, is to follow one of the main investment rules: to diversify systematically. Meaning that you should not put all of your eggs in one basket and ensure the baskets are of different materials. It is not the quantity of investments options held, rather it has to do with carefully spreading your assets, avoiding duplicates.

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It’s Never Too Early or Too Late to Invest

IT'S NEVER TOO EARLY OR TOO LATE TO INVEST

Investment can seem daunting at first. Then, once you get into it, you’ll easily find yourself looking back at those early days and wondering why you waited so long with making your first investment. Taking an interest in your financial future is highly important, so let this article encourage you to start your investment journey today.

By Martina, co-founder of Bifrost - Oct 16 2018

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No matter what stage in life you are in, having savings is important; whether it is for your college education, a new car, an emergency fund or retirement. By investing your current savings, your money will accumulate over the years. One of the oldest cliches in personal finance advice is “pay yourself first”, which is a cliche because it works.

 

Difference between investing and saving

Let’s begin by distinguishing the difference between investing and saving. There are multiple ways to save money, buying items at discounted rates and setting aside a portion of your salary are easy ways to start. Refer to this blog post for more on this. Investing, however, refers to what you do with the money you have set aside. Instead of leaving the money in a piggy bank or on a savings account, you put your money to work. There are numerous ways to invest, refer to our blog post on Effortless Investing for more information.

 

Why invest?

There are only two ways to increase your assets in today’s world; by working for either yourself or someone else, or by having your money work for you. Having your savings hidden under your mattress or on a bank account with zero percent interest rate, means in most cases that you over time will be losing money due to inflation. Your saved £1,000 will buy you more today than what it will a year from now, according to the time value of money. Thus, if you don’t put your money to work, you will in fact be “losing” money over time.

 

Don’t let fear stop you

One of the main reasons people choose not to invest is due to the lack of knowledge. Many people believe that investment is difficult, and thus shy away from it. Only 21% and 35% of men hold an investment in the UK, and UK citizens own 12.3% of UK shares while the majority (53.9%) is owned by businesses or people overseas. In fact, investment is not as difficult as many believe.

Another reason people don’t invest is because they believe it will take up too much of their time. It will take up some of your time, and some advice for that is to allocate time in your schedule for it. Some timeworn advice is to work on the most important project for the first hour of your day to ensure other committments don’t intrude. Take this advice for investing, to “pay yourself first”.

 

Anyone can learn to invest

No one was born an investor. You learn through research, conversations, and, above all, trying it out. Begin by taking baby steps. Remember that every investment journey starts with the first pound. You will learn a lot from your first investment, and continue to learn for every investment thereafter. Make sure that the amount of money you choose to invest, you can afford to lose. There is never a guarantee that you will be earning money, however, once you become more immersed in the world of investment, your understanding of it will help you make better decisions.

 

Investing is individual

It does not matter how you do it, whether it is through funds, stocks, real estate, options, a small business or a combination, the objective is the same; to generate more money through these investments. A recommendation is to start off by assessing your own investment situation; whether you are young and new to this field, middle-age and building a family, or old and self-governing. These age segments, as well as your income and outlook, will have an impact on your investment strategy.

Read this article for recommendations on how you should invest according to your age.

 

Bottom line

Do not shy away from investment because of your age, or any other situation you may hold as an excuse. Instead, see this as an opportunity to begin learning and involving yourself with this field.

We hope that this article will encourage you to take the first step into your investment journey!

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Finance Has A Shocking Gender Gap

FINANCE HAS A SHOCKING GENDER GAP

Out of the Fortune 500 companies, there are 26 female CEOs and 58 female CTOs. The number of women holding senior positions is increasing, but there is still a long way to go in order to achieve gender equality. In the financial industry, the gender gap is even more prominent, including both a lack of female participation as well as unfair differences in salaries.

By Martina, co-founder of Bifrost – Oct 08 2018

Despite efforts for a change in culture, the progress towards gender equality is slow. Today, only 14% of partners at private equity firms, hedge funds and other financial services companies are women. According to data provided by the Financial Conduct Authority. Out of the 9,957 partners, 1,381 (14%) were women, which is less than 1 in 7. The number has only increased by 2% in the past 5 years. A diverse employee group is likely to provide significant benefits for a company in the long run. Research conducted by McKinsey showed the correlation between diversity and success within companies;  the firms at the top quartile for diversity were 15% more likely to see their financial return above the national median within their industry.

 

The attitude women have towards the financial industry could explain why there are so  few womens holding senior positions within the financial sector. Women chose not to apply for positions within trading and investment, resulting in more resumes received from men than women in the recruitments by these firms. Job positions including brokers and financial researchers tend not to be very popular amongst females, partly due to the “macho” culture the financial industry fosters. Instead, women tend to gravitate towards work environments consisting of other women. Yet, the interest in finance and investment remains. Thus, a lot of support groups have been established to provide assistance for female investors. This includes the International Finance Corporation’s: Banking on Women, and various female investment clubs.

 

In order to minimize the gender inequality, the issue needs to be tackled at a much earlier stage. The ABC of Gender Equality in Education found that girls, even if they were high achievers, tend to express strong feelings of anxiety in subjects such as mathematics compared to boys. As a plausible result, there are less females studying these subjects at university level. This attitude are much likely passed down from teachers and parents.

 

Hetty Green (1834-1916), the witch of Wall Street, was a pioneer of her time by being a model of groundbreaking financial intelligence and independence. Her unconventional ways led to extraordinary financial success. She opened her first bank account at age 8, received much of her education through reading financial papers, and traded the family fortune, which she was handed, on the stock market. She told the New York Times in 1905 “I buy when things are low and nobody wants them. I keep them until they go up and people are anxious to buy”.

 

Another issue within the financial industry is the great differences in compensation. Finance accounts for six out of ten jobs with the greatest gaps in pay between genders. The financial sector alone has a 22% pay gap on average, while the UK national is at 9%. The number is even higher for bonuses, with a 46% difference in pay on average. Of people earning above £1 million, 4,600 of them are men while only 400 are women. To address this problem, attitudes needs to be changed at the top. Big tech firms are far more willing to accept women into senior positions. Financial positions within charities are also more likely to have a better female to male ratio. Out of the 100 largest charities in the UK, there is a record 31 female directors with chief responsibility for finance. Overall, the gender inequality is diminishing, and there have never before been so many high-qualified women who earn well and want to invest their money.

Wealth Management

The Term Wealth Management Explained

THE TERM
WEALTH MANAGEMENT EXPLAINED

New to investment or having a difficult time explaining the term “wealth management”? You’re not alone. In fact, a lot of professionals have a difficult time defining the term and it is often thrown around in boardrooms, in articles and in trade. In actuality, wealth management is very straightforward; it encompasses all parts of an individual’s financial life with the goal of solving or enhancing the financial situation through providing a range of financial services and products.

By Martina, co-founder of Bifrost – Sep 29 2018

The large quantity of financial resources and tools, once only available to financial professionals, are now accessible by the general public. Thus, many individuals delve into the world of investments and an increasing number of investors consider themselves to be a least partly self-directed in their financial decisions. However, the world of investments is becoming more complex and require a higher time commitment. As a result, many turn to high-level experts for guidance. The wealth manager will have an influence on your financial future, and therefore selecting the right wealth manager can be a highly critical decision.



A Wealth Manager

A professional who works within the wealth management service is generally called a wealth manager. These professionals have an in depth knowledge of investment markets and personal finance. In essence, a wealth manager can provide any existing financial service. In reality, the professionals often specialize in a specific area based on the expertise of the wealth manager. These areas include accounting and tax services, financial advice, investment management, legal or estate planning, and retirement planning. Depending on the business, the wealth managers may operate under different titles, for example financial advisor.



Structure

Wealth managers are either a part of a wealth management firm or they are standalone practitioners. The approach towards wealth management is often holistic, where a single manager coordinates all financial products and services needed to manage the client’s money and future planning. Depending on the business structure, a client may have access to multiple members within a wealth management team. Wealth managers focus on delivering their service in a consultative manner by meeting the needs and wants of their clients. Thus, the industry is truly client-centered.



Strategy

Initially, the wealth manager will meet with his/ her client to better understand their needs and wants in order to begin developing a plan that will maintain and increase the client’s wealth. This is based on the financial situation, goals, and risk level of the client. Regular meetings ensure that the plan is updated appropriately in accordance to any changes to the individual’s wants and needs.



Selection Process

In your wealth manager search, there are a couple of things to consider. Overall, it is important to match their characteristics, level of experience, temperament and client profile to your own. The more you know about your own financial situation, investment objectives, and risk level, the easier it will be to understand and evaluate the wealth managers. Other things to consider include:

  • Background and Experience: Make sure to check the credentials of the wealth manager to understand their level of expertise. Think of it as hiring an employee; ask for their qualifications, certification, track record and network of clients. The professional you choose will have an impact on your financial future, and therefore finding a trusted individual should be the number one thing you look into.
  • Payment Options: There are multiple ways wealth managers make their money. Some charge a flat fee, while others charge a percentage of your investments. In investment firms, advisors generally earn their money through commissions on products and services since that is how the company makes its money. These professionals need to adhere to certain standards of suitability when recommending products and services, but they are not required to place the interest of their clients first.
  • Dedication for Professional Guidance: Recommendations by any wealth manager should not be considered unless the person has done a thorough assessment on their client’s financial situation, goals and risk level. One thing you could do is to ask the wealth manager for equivalent product offerings available at different fees. Be cautious and assess whether the professional has the best interest in you and your finances or if you are confronted by a salesperson.
  • A Good Match: After assessing the above criteria, start to consider the personal match between you and the wealth manager. This is an individual who you will be in contact with over a longer period of time, and thus it is important to find an advisor who will provide conflict-free investment advice.

 

If you are considering a career within wealth management, then read this article to find out more. 

 

Modern Wealth Management

Traditionally, the wealth management industry has been specifically targeted towards wealthy individuals with diverse wants and needs. But the industry is changing and here at Bifrost we aim at making the wealth management service more affordable and accessible to the general public. This is possible through providing specific financial products and services by focusing on an aspect of the wealth management industry.

About Bifröst

Bifröst connects investors with wealth managers. We offer personalized advice from licensed experts in the industry to provide a simple and tailored investment experience.

Risk Warning: As with all investing, your capital is at risk. The value of your portfolio can go down as well as up and you may get back less than you invest. It’s important you understand the risk before making investment decisions. Historical returns are no guarantee of future returns.

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Bifrost Wealth Limited
272 Bath Street
Glasgow
G2 4JR

+44 780 247 3577
info@bifrostwealth.com