Investment and Risk

Looking for Developers!

Start the year with a book!

Time in the Market or Market Timing

2018, what a great year!

£5 a day will make you rich.

How To Protect Yourself From Financial Abstraction!

The Basement Incubator

The Marshmallow Test

How to Create Young Financial Geniuses – pt 2

Investment and Risk

Investment and Risk

 

The purpose of an investment is generally to get returns in the form of interest and/or an increase in the value of the money. But securities trading always involves risk, in the worst case, your invested money may disappear.

 

By Viktor, co-founder of Bifrost - Jan 14 2019

Investment and Risk

Interest rates are often associated with investments in interest-bearing investments, such as bonds and bank accounts. Value increase is usually used in connection with shares or equity-related assets and means that the price of the asset increases during the time you hold it. You must not forget that the price of the asset can also fall and that you, in that case, do not get back the money you invested.

Risk and risk diversification

In connection with an investment, there is the risk that you will not get back the entire capital and partly that return will not be the one you thought. The risk that you will not get back invested capital may, for example, be that the borrower goes bankrupt or that you have invested in an asset that falls in value, for example, listed shares. The risk that you will not get the return you wanted is higher if you invested in shares than if you placed your money in interest-bearing investments like bonds. Shares and assets based on shares normally involve significantly higher risk. You can lose some of, or even the whole, of your invested capital. On the other hand, there is an opportunity for higher returns compared with interest-bearing investments. The return on interest-bearing assets is often an agreed interest rate.

Spreading risk

You can reduce your overall risk by spreading your risks - "Don't put all your eggs in the same basket". By dividing your total investment into different investments, you do not expose the entire investment to the same type of risk. If you have your entire savings invested in shares in a single company, your return is entirely dependent on the return on those shares. If you instead place your savings in several companies' shares (or in a mutual fund), your total risk decreases.

This reasoning is for example used in Modern portfolio theory (MPT) by Markowitz, the Nobel prize winner. If you place your investment not only in shares but also in interest-bearing investments, your risk is further reduced. At the same time, you have also reduced your opportunities to get a high return.

Borrowing against securities

It is not uncommon to borrow securities, that is, borrow money from a lender with securities as collateral. If you choose to buy securities with borrowed money, you must be aware that you increase your risk-taking considerably. This is usually called securities-based-lending (SBL). SBL can in the right situation be a win-win for the borrower and lender, but the growing usage has led to concern to what could happen if the market turns. This is because, if your investment fails, the consequences will be much worse than if you had not borrowed money.

Liquidity

When making investments you should ask yourself how long you can spend the money. Even if you have not planned that the money will be used on an occasion, it is important to know how liquid the investment is, that is, how quickly you can sell. You may end up in a situation where you suddenly need money.

You need to make this assessment for every investment you make. If you buy a house, it normally takes quite a long time to get it sold and get the money in your hand. If you invest in one of the most traded shares on FTSE 100, you can probably get them sold within minutes.

It is important to remember that there are no guarantees that a deal may be made. There may be technical problems - computers may be acting up and telephone lines can be overloaded. It can also simply be that there is no one who wants to buy what you want to sell.

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Looking for Developers!

 

 

Fancy to be part of a new upcoming Fintech Startup? Are you looking to test your skills in a collaborative but yet challenging environment? Want to experience the startup life? Then this post is for you!

 

By Antreas, co-founder of Bifrost - Jan 12 2019

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Bifrost is an early stage startup aiming to create a seamless matchmaking experience of wealth managers and investors. It was founded solely by University of Glasgow students and aims to disrupt the UK wealth management industry. We are based at the University of Glasgow and we are looking for technical partners to join us in this amazing journey.   Currently, we are looking for two more developers to join our technical team ideally with experience in front end and back end development respectively. As a core member of the technology team, you will actively participate in product development, ideation, deployment and beyond. You will be developing groundbreaking features using the latest web technologies and also help to maintain and test existing components. We are looking for developers to join as partners, for the following positions:

Python/Django Developer

 

Essential Criteria:

  • Must be proficient in Python programming

  • Experience with Django Web Application development.

  • Experience with Django Rest Framework

  • Experience with Agile Development practices

  • Eager to learn new technologies

  • Team player and communication skills

 

Desirable Criteria:

 
  • Experience in TDD

  • Experience with Celery

  • Experience in Docker and RabbitMQ

  • Front End technologies knowledge

 

 

Front End Developer

 

Essential Criteria:

  • Must be comfortable in programming in TypeScript/JavaScript ES6

  • Experience with Angular 5 application development

  • Knowledge of HTML5, SASS and JQuery

  • Experience working with npm

  • Experience with Agile Development practices

  • Eager to learn new technologies

  • Team player and communication skills

 

Desirable Criteria:

 
  • Experience in TDD

  • Back End technologies knowledge

  • Web Design aesthetics mindset

 
If you are interested in any of the positions above, please send your CV at antreas@bifrostwealth.com
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Start the year with a book!

 

 

This week’s blog post might be short, but it’s very good. Trust me! This time I’ll give some of the greatest books about investing to start off your year with. They are not ordered in any specific order, but “One up on Wall Street is a good book for beginners.

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

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1. One Up On Wall Street – Peter Lynch

”Peter Lynch believes that average investors have advantages over Wall Street experts. Since the best opportunities can be found at the local mall or in their own places of employment, beginners have the chance to learn about potentially successful companies long before professional analysts discover them. This head start on the experts is what produces 'tenbaggers', the stocks that appreciate tenfold or more and turn an average stock portfolio into a star performer. In this fully updated edition of his classic bestseller, Lynch explains how to research stocks and offers easy-to-follow directions for sorting out the long shots from the no shots. He also provides valuable advice on how to learn as much as possible from a company's story, and why every investor must ignore the ups and downs of the stock market and focus only on the fundamentals of the company in which they are investing.”

 

2. The Warren Buffet Way – Robert Hagstrom

“Warren Buffett is the most famous investor of all time and one of today s most admired business leaders. He became a billionaire and investment sage by looking at companies as businesses rather than prices on a stock screen. The first two editions of The Warren Buffett Way gave investors their first in-depth look at the innovative investment and business strategies behind Buffett s spectacular success. The new edition updates readers on the latest investments by Buffett. And, more importantly, it draws on the new field of behavioral finance to explain how investors can overcome the common obstacles that prevent them from investing like Buffett. New material includes: * How to think like a long-term investor just like Buffett * Why loss aversion, the tendency of most investors to overweight the pain of losing money, is one of the biggest obstacles that investors must overcome. * Why behaving rationally in the face of the ups and downs of the market has been the key to Buffett s investing success * Analysis of Buffett s recent acquisition of H.J. Heinz and his investment in IBM stock The greatest challenge to emulating Buffett is not in the selection of the right stocks, Hagstrom writes, but in having the fortitude to stick with sound investments in the face of economic and market uncertainty. The new edition explains the psychological foundations of Buffett s approach, thus giving readers the best roadmap yet for mastering both the principles and behaviors that have made Buffett the greatest investor of our generation.”

 

3. Black Edge – Sheelah Kolhatkar

“Black Edge offers a revelatory look at the grey zone in which so much of Wall Street functions, and a window into the transformation of the worldwide economy. With meticulous reporting and powerful storytelling, this is a riveting, true-life legal thriller that takes readers inside the US government’s pursuit of Cohen and his employees, and raises urgent questions about the power and wealth of those who sit at the pinnacle of the financial world.”

 

4. The Intelligent Investor: A Book of Practical Counsel – Benjamin Graham

“The greatest investment advisor of the twentieth century, Benjamin Graham taught and inspired people worldwide. Graham's philosophy of “value investing”—which shields investors from substantial error and teaches them to develop long-term strategies—has made The Intelligent Investor the stock market bible ever since its original publication in 1949. Over the years, market developments have proven the wisdom of Graham’s strategies. While preserving the integrity of Graham’s original text, this revised edition includes updated commentary by noted financial journalist Jason Zweig, whose perspective incorporates the realities of today’s market, draws parallels between Graham’s examples and today’s financial headlines, and gives readers a more thorough understanding of how to apply Graham’s principles. Vital and indispensable, The Intelligent Investor is the most important book you will ever read on how to reach your financial goals.”

 

5. A Random Walk Down Wall Street – Burton G. Malkiel

“In today's daunting investment landscape, the need for Burton G. Malkiel's reassuring, authoritative, and perennially best-selling guide to investing is stronger than ever. A Random Walk Down Wall Street has long been established as the first book to purchase when starting a portfolio. This new edition features fresh material on exchange-traded funds and investment opportunities in emerging markets; a brand-new chapter on "smart beta" funds, the newest marketing gimmick of the investment management industry; and a new supplement that tackles the increasingly complex world of derivatives.”

 

More books will come at some point in the future, but this is good for now. If you know a great book about investing, please feel free to contact me on viktor@bifrostwealth.com.

Happy returns, Viktor

Time in the market or Market Timing

Time in the Market or Market Timing?

 

2018 will be the worst year in a decade with FTSE 100 falling an approximately 12.5%. We now ask ourselves if it is the time you spend in the market that matters or if you can time the market to perform better? 

By Viktor, co-founder of Bifrost - Dec 31 2018

Business Insider stuff

After a year fueled by anxiety over trade wars, Brexit uncertainty, and fears over the global economy, it is now clear that the FTSE 100 suffered the biggest annual fall in a decade. The FTSE 100 shed more than £240 billion in 2018, from falling 7,687 at the start of this year to 6,728 at its close.

 

My point is that it is extremely difficult to time the market, which we learned not least in connection with the past year. The stock exchange trended downwards from January to the end of March and then recorded its highest listing on May 22nd. After May, the stock exchange sloped downward again and ended earlier today. In fact, if one had departed on a seven-month holiday without Wi-Fi and the opportunity to check on the portfolio had not seen any significant difference between March and October.

 

Fast movements in both directions are common and it is difficult to time them. Only this year we saw the stock market decline almost -10% from January to the end of March. Just under two months later, on May 22nd, we saw the stock market rise + 14.35%. Of course, this applies in both directions but over time we know that the stock market tends to rise. This is because the companies are growing, sales/profits are rising, and that the stock exchange occasionally tends to value the profits higher. What should not be forgotten is that the composition of the stock exchange, however, looks different. In the US, many of the largest companies in the 1980s were oil-related and today it is the tech that is the "new hot".

 

Market Timing or Time in the Market

 

This is something that is often debated among investors. Is it time in the market that, like the river, lifts stranded boats on the sand bed after ebb or should you jump from stone to stone and try to time the market?

 

The picture above from Business Insider shows how the return is affected if you miss some of the best days. During the 20-year period 1993-2013, it was enough to miss 10 days to almost halve the return. If we count on 250 trading days in one year, 10 days in two decades means 0.2% of the number of trading days, which makes half the difference, it is worth to think about.

I usually say that there are as many investment philosophies as investors and you should simply save and invest in the way that suits you best. One common objection is to ask how the above development had looked if you missed the 10 worst days. Of course, much better but, it requires a crystal ball to be able to know when the stock market's regular settlements come and when it is time to enter the market again and jump to the next stone, something which in any case I’m not able to do.

 

Happy returns and Happy New Year.

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2018, what a great year it has been!

 

Wow, what a year it has been! We started with almost nothing in January and now we’re looking at onboarding more developers. Let us go through what 2018 have meant for us and the milestones we have reached on the way.

By Viktor, co-founder of Bifrost - Dec 24 2018

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Even though the idea behind Bifrost came to Dino, our CEO, a long time ago, it wasn’t until November of 2017 that we gathered a team to develop the idea to something tangible. We took our first steps back in 2017 and compared to what we achieve on a daily basis today it might seem trivial, but none of us would be here today if we would’ve stopped working back then.

In May of 2018 Bifrost got incorporated as Bifrost Wealth Limited. To some, it’s an insignificant step since its just paperwork, but the truth is that many companies don’t even make it past the first year. Thus, this is a milestone that we celebrate and are proud of.

Then the summer came along and Andreas, our CTO, finished the first prototype. This was the first time we got to see it working, and even though we only had a minimum viable product it was quite satisfying. This showed us that we can affect wealth management and provide an investment service that offers great value.

After the first prototype we continued development and during early fall launched the second prototype, in which we expanded the platform to create a more wholesome investment experience. This meant a better workflow on top of the improved UI and UX.

Then Martina represented Bifrost in San Diego, California, at the Basement Accelerator competition. Talk about gratification! Bifrost’s win in the Basement Accelerator competition gave us concrete proof that what we are doing is not only right but that there’s a demand for it.

In mid-November, the University of Glasgow Fintech Society hosted their Applied FinTech Project Final and we got the chance to interact with FinTech Scotland. Firstly, we love University of Glasgow’s FinTech Society, not only are they the first FinTech society in Scotland and partially founded by our very own CTO, but they also helped us reach out in the beginning. Secondly, FinTech Scotland's work is truly great and we are happy that they are a part of the FinTech Scene here in Scotland! If you have the chance, I encourage you to take a look at their website, and the community where you’ll even find us.

And suddenly it is already Christmas, 2018 flew by, and we are so happy about everything we have achieved! However, it is far from over and we have just begun our journey to create tomorrows advisory service for the clients of today.

 

From All of Us to All of You

A Very Merry Christmas

Bifrost Wealth

£5

£5 a day will make you rich.

 

How do you get rich? Can you get a fortune without earning money, marrying money, winning a lottery or some other game? Yes, you can become the best in the world of sports or start a successful business. But you may not have the special talents required to become a superstar. Do not give up! Because the opportunity to make a substantial amount of money on your own is also available to you and the way it is to pay 10% to yourself every month.

By Viktor, co-founder of Bifrost - Dec 17 2018

£5

There are not many who can get rich in the ways I mentioned above. Many even have difficulty getting money to last between payroll payments. Perhaps you belong to that crowd. However, by starting to cut off 10% to yourself in long-term savings, you have the opportunity to build a fortune. This also assumes that you choose the right savings form and that you are persistent.

 

Instead of buying lottery tickets, you can make an active decision that you want to make a change in your life. That's the start. For example, the decision may be to save £150 a month with 6-10% return (which is reasonable if you look at the historical development of the stock market). Per day it will be about £5. And for the most part, it should be a possible saving to do, for example, not eating lunch out, stop smoking and skip that unnecessary pizza, which both only makes your health worse. Alternatively, you may find a way to earn £5 extra per day in addition to your salary, your student contribution or other regular income.

 

But can £5 a day really be the way to a fortune? Yes, it can. For example, say that you are 23 years old and you start saving £150 a month as soon as you receive your salary. You then invest this money in a low-fee or even zero-fee index fund, that succeeds in getting about 10% of annual return, and that you reinvest in the fund. There are other great funds as well, but for someone who doesn’t know where to begin, this is a sensible option. When you are 65 years old and have saved this way for 42 years, you are not “time millionaire” because of your retirement, but you are also a millionaire in your bank. After all, your saved capital has grown to about £1,000,000.00.

 

Thus - your £5 a day, your active decisions, the compounding effect, and a wise investment is now worth £1,000,000.00.

 

When you think about this scenario, it's certainly not hard for you to motivate you to save £5 a day. Or is it? Surely its worth £5 a day to have financial security in the future?

 

An insight that is important and as we can see with the help of this example is that you do not have to have a high salary to get rich. You get rich by saving. Thus, it is largely about a lifestyle, an attitude, and a clear goal. And, as I said, a simple method of paying 10% to yourself first. 

How To Protect Yourself From Financial Abstraction And What It Is?

In a not so recent Ted Talk, Adam Carroll explains what a $10,000 monopoly experiment taught him about finance management in a cashless society. Today I will talk about Financial Abstraction and give you some tips on how you can protect yourself.

By Viktor, co-founder of Bifrost - Dec 10 2018

When we digitalise money we lose touch with it. Our financial behavior changes and money becomes more of an idea and less of a physical object. The fact that our relationship with money changes depending on how real money is is known as financial abstraction.

The psychological distance is greater with electronic payments than with cash, which is why we tend to spend more. I believe we can agree that electronic payments such as debit card, credit card, PayPal etc. are great. It is both efficient and convenient. However, we must understand how electronic payments and for example, contactless payment affects our behavior.

All of us have probably been in a situation, in which we are carrying $10 and we refuse to spend it because it’s all we have in the wallet. Well, if you instead have the $10 on your phone and all you have to do is swipe, then it’s more inviting.

Now, how do you protect yourself from this? It might be hard to change a habit, but it is doable and I want you to succeed!

 

1.       Carry more cash

The first tip is probably self-explanatory. Using hard earned cash in its physical form, instead of paying by card of mobile will make you more aware. Even though the amount of the payment is equal regardless of the payment method you choose, you will feel a physical loss when you pay with cash. This will hopefully make you spend less

It hurts more to lose than to win. It is called Loss aversion and it refers to people’s tendency to prefer avoiding losses to acquiring equivalent gains: it is better to not lose $10 than to find $10.

 

2.       Utilize electronic payments for large purchases

Let’s say you are making a larger purchase. Maybe your buying a new tv, a rug or something that’s a bit more expensive. Anyway, when a larger purchase is made you probably feel the physical loss even though it was payed electronically.

However, if you spend anything under $10 you probably won’t. That’s why you decide to always use cash for smaller transactions. This way you will be able to skip the Starbucks coffee, because you are running low on cash.

 

3.       Have a budget for purchases with Debit/Credit Card.

If you usually pay with card, then you can try to set up a budget for purchases by card. Let’s say that you only let yourself spend a certain amount with your card and when you reach that you’ll have to use cash for the rest of the month. This has at least two benefits.

1.       If you don’t want to use cash, then you’ll stay within your budget.

2.       You’ll learn to carry cash.

Also, budgets are good, and we should all learn to co-exist with them. :)

 

 

I urge you to take a look at Adam Carrolls Ted Talk called, “When money isn’t real: the $10,000 experiment 

Martina, The Basement Incubator

The Basement Incubator

 

We at Bifrost want to share with you some exciting news about our recent acceptance into a startup incubator. The Basement at UCSD provides a community for startups to further develop their businesses with the help of resources and valuable connections. 

By Martina, co-founder of Bifrost - Dec 3 2018

Martina, The Basement Incubator

One of our co-founders, Martina Lofqvist (seen in the far right in the picture above), recently got Bifrost into an accelerator program at the University of California, San Diego. The Basement is a center for innovation and entrepreneurship. They offer a range of different programs, including the Seeker, the Incubator, and the Accelerator tracks for student startups. These programs provide access to various resources, mentorship, events, and more.

 

The Basement was developed in alignment with UC San Diego’s focus on entrepreneurship, innovation and change making. It is a program primarily aimed at undergraduate students, but also has opportunities and support graduate students, alumni, postdocs, faculty, staff and community members. The Basement was founded by UCSD alumni, Jeff and Kim Belk, Forecast Ventures, Aryeh Bourkoff, LionTree LLC, and Mark Suster, Upfront Ventures. Since the launch in 2015, it has seen a rapid growth in both program offerings and members.

 

After an application and judging process, Bifrost got accepted into the advanced program, the Accelerator Track! This means that Bifrost will be able to take full advantage of the resources provided by The Basement. This includes access to the facility, funding in cash, Amazon Web Server credits, legal advice, access to unique startup opportunities in San Diego, Mock Advisory Board meetings, event access, Hubspot marketing software, Mattermark data discovery and tracking, and mentoring.

 

 

We look forward to working with The Basement at UCSD! 

Marshmallow

THE MARSHMALLOW TEST

The psychologist Walter Mishel investigated impulse control in children and adults in a featured series of experiments, called the Marshmallow test. Is impulse control inherited or taught? Does the control of impulses lead to success? And which methods can strengthen one's impulse control?

By Viktor, co-founder of Bifrost - Nov 21 2018

Marshmallow

The test itself is simple.

·       A marshmallow is placed in front of a preschool child.

·       The researcher explains that the child is allowed to eat candy now, if he wants to, but then he will not get anymore since.

·       If the child refuses to eat candy now, he will get two pieces later.

·       Then the scientist leaves the room - "Coming soon!".

·       The child is filmed when dealing with the battle between a small short-term and a longer long-term reward.

·       The researcher measures the time the child can wait.

Hundreds of children have been tested since the 1960s and were followed up to the age of 40.

 

Predicting success

The Marshmallow test first drew attention when the preschool children were followed up as teenagers. Then it turned out that the children's Delay Ability (the ability to wait for a reward, or self-discipline) gave a good prediction of how well it went for them later.

Children who could withstand the impulse to eat their marshmallow for a while had, as teenagers, better self-esteem, better grades, better stress, used fewer drugs and alcohol, and had more friends.

Some test subjects were followed up to the age of 40, and the pattern remained. The children who had the Delay Ability became healthier and slimmer adults with higher income and better relationships.

Mischel became unhappy when this was discovered. Is it possible that a child's future is outlined at 5 years of age? Is there nothing you can do? So, he devoted the rest of his research life (He died on the 12th of September 2018) to find ways to strengthen children's and adults' Delay Ability.

 

Strategies

Hot and cold systems

Mischel's research team was dedicated not only to plaguing young children with temptations, they also tested methods to help the children resist the temptations.

Our brains have two systems that Mischel defines as “Hot System” and ”Cool System”. Hot is emotionally driven, impulsive, unconscious and Cool is logical, resonant, conscious.

The feelings in our Hot System are linked directly to action - hungry-eat, angry-fight, restless-check the email. We can’t turn off our Hot System because then we will not do anything! But most of us need to strengthen our ability to sometimes let our long-term interests control more than the short-term.

What we need are techniques to "cool down" the short-term interest so the impulse to fall for a temptation becomes weaker. In addition, we should learn to "warm up" the long-term interest so that it becomes more appealing.

 

The strategy is Cool the Now, Heat the Later.

 

Cool the Now

Mischel and his colleagues collected countless films on children who - more or less successful - struggle against the temptation to immediately eat their marshmallow. Children who managed to wait did not just sit there, they used strategies:

 

·       Invisible: They hid the marshmallow, turned their backs or shut their eyes.

·       Distraction: they played, sang and thought of something else

·       Abstraction: they pretended that the marshmallow was a picture, or something else inedible - "a fluffy cloud".

·     They disarmed their Hot System by creating psychological distance.

 

Heat the Later

In the United States, you can tell your employer how much money you want to be put into retirement each month, and many people do not put aside enough.

A marshmallow test for adults - a little money immediately or more money later.

A large company let their employees enter pension amounts in a form illustrated by a picture of themselves. Half the group saw a normal picture of themselves, while the other half saw a picture of themselves that had been manipulated to make them look as if they were 70 years old.

Those who saw the older picture put off 30% more each month than those who saw the normal picture.

The psychologist’s explanation is that it is hard to imagine yourself as an older individual and therefore won’t feel empathy for that person. Once again, creating psychological distance.

 

What we can learn from this

·       The ability to resist temptations - our Delay Ability - is already evident in pre-school age and is strongly connected with how we manage socially, economically and health-wise.

·       We can strengthen our self-discipline by properly manage our Hot System and Cool System. We can also help others to strengthen their self-discipline.

·       Two marshmallows in the future are judged by our Cool System while one marshmallow now, is judged by our Hot System. Therefore, one seems better than two, even though we know it's wrong.

·       Our Hot System can be cooled down through psychological distance. Get rid of the emotions!

·       Our Cool System can be heated with stories, pictures that create feelings.  

 

If you would like to read more about The Marshmallow test, then I suggest you buy a copy of Walter Mischel's book, "The Marshmallow Test: Understanding Self-control and How To Master It".

 

 

Financial-Geniuses

HOW TO CREATE YOUNG FINANCIAL GENIUSES - PT 2

In the first part of “How To Create Young Financial Geniuses”, we talked about the importance of financial literacy, the responsibility of parents and guardians, and how providing children with an allowance can have many benefits. This week we’ll continue on this topic with more illustrations on what to do to prepare the young and bright.

By Viktor, co-founder of Bifrost - Nov 21 2018

Financial-Geniuses

Rich Parents vs Poor Parents

No matter their background, children will need the same amount of education to understand the importance of personal finance. There is often a misunderstanding that rich kids are better at finance, and this is somewhat true, but the notion that it is the poor families that need to be financially educated is wrong. It all depends on how much families include discussion about money in their homes.

Research shows that parents’ influence is 1.5 times greater than that of financial education and more than twice that of friends. Children are primarily formed by their parents, so if there is minimal financial influence from home, they will perform worse when faced with a financial decision.

As with everything, the earlier it is introduced the bigger the impact. Here I will stop and repeat what we said in the last blog post. Financial experts recommend two things; to start early and to talk often. This will lay a behavioral foundation and provide children with an advantage, regardless of their financial status.

Just because your rich does not mean you are good with money. There are many examples of this, but a fine one is the Vanderbilts, whom in just a few generations blew through great amounts of wealth.

Investing

Saving money is important, but investing money is crucial. Saving and investing are often used interchangeably, but there is a difference between them. Saving is setting aside money for future purchases. It is money that you want to be easy and quick to access. Investing, however, is buying stocks, mutual funds, bonds, real estate etc. with the expectation that your money will grow. As your child becomes more aware of personal finance it is important that you teach them about investing, since it will give them an advantage in life.

If you deposit £1,000 in a savings account at 3 percent annual interest, it will grow to £1,806 in 20 years (before taxes). If you instead invest £1,000 in a stock mutual fund earning an average 8 percent a year, it will grow to £4,660. That is almost 2.6 times more than if it was saved in a savings account.


Resources

It can be hard to teach children financial literacy alone, especially if you do not know where to start. Luckily, we have tools within an arm’s reach to help us with this task. There are both great books and applications, which is why we will pick a few that we at Bifrost believe are good resources. There is an overwhelming number of different apps for your kids, but here are some that we like.

Apps

There is an overwhelming number of different apps for your kids, but here are some that we like.

 

Renegade Buggies

·       Available for iOS and Android

·       For kids 6+

 

”Renegade Buggies is a dynamic endless runner game with a financial literacy curriculum at its core. Learn to be financially responsible by using smart consumer strategies. Compare unit sizes, buy in bulk, and use coupons and promos along the way. Become a checkout hero by increasing your Overall Money Saved, all while racing down a high-speed track as groceries, coins, and even moving tires come your way!”

 

 

RoosterMoney: Allowance Manager & Piggy Bank App

·       Available for iOS and Android

·       For kids 3+

·       Family fun

 

“RoosterMoney is a mobile pocket money manager & piggy bank designed to help families teach their kids about money and savings goals. We’re also a chore tracker & reward chart. Available in any currency.”

Books

 

Money Doesn’t Grow on Trees: A Parent’s Guide to Raising Financially Responsible Children

This New York Times Bestseller provides parents with suggestions on how to teach their children money management from a young age. The book offers exercises and concrete examples on everything from responsible budgeting to understanding the difference between “want” and “need” for children of every age.

 

How to Turn $100 into $1,000,000: Earn! Save! Invest!

 

“Written in a humorous but informative voice that engages young readers, it’s the book that every parent who wants to raise financially savvy and unspoiled children should buy for their kids. It is packed with lively illustrations to make difficult concepts easy to understand—all as a way of building financial literacy, good decision-making, and the appreciation of a hard-earned dollar.

Index Funds Pros & Cons (1)

Index Funds – Part 2

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

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

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.

Investment and Risk

Investment and Risk

Investment and Risk

 

The purpose of an investment is generally to get returns in the form of interest and/or an increase in the value of the money. But securities trading always involves risk, in the worst case, your invested money may disappear.

 

By Viktor, co-founder of Bifrost - Jan 14 2019

Investment and Risk

Interest rates are often associated with investments in interest-bearing investments, such as bonds and bank accounts. Value increase is usually used in connection with shares or equity-related assets and means that the price of the asset increases during the time you hold it. You must not forget that the price of the asset can also fall and that you, in that case, do not get back the money you invested.

Risk and risk diversification

In connection with an investment, there is the risk that you will not get back the entire capital and partly that return will not be the one you thought. The risk that you will not get back invested capital may, for example, be that the borrower goes bankrupt or that you have invested in an asset that falls in value, for example, listed shares. The risk that you will not get the return you wanted is higher if you invested in shares than if you placed your money in interest-bearing investments like bonds. Shares and assets based on shares normally involve significantly higher risk. You can lose some of, or even the whole, of your invested capital. On the other hand, there is an opportunity for higher returns compared with interest-bearing investments. The return on interest-bearing assets is often an agreed interest rate.

Spreading risk

You can reduce your overall risk by spreading your risks - "Don't put all your eggs in the same basket". By dividing your total investment into different investments, you do not expose the entire investment to the same type of risk. If you have your entire savings invested in shares in a single company, your return is entirely dependent on the return on those shares. If you instead place your savings in several companies' shares (or in a mutual fund), your total risk decreases.

This reasoning is for example used in Modern portfolio theory (MPT) by Markowitz, the Nobel prize winner. If you place your investment not only in shares but also in interest-bearing investments, your risk is further reduced. At the same time, you have also reduced your opportunities to get a high return.

Borrowing against securities

It is not uncommon to borrow securities, that is, borrow money from a lender with securities as collateral. If you choose to buy securities with borrowed money, you must be aware that you increase your risk-taking considerably. This is usually called securities-based-lending (SBL). SBL can in the right situation be a win-win for the borrower and lender, but the growing usage has led to concern to what could happen if the market turns. This is because, if your investment fails, the consequences will be much worse than if you had not borrowed money.

Liquidity

When making investments you should ask yourself how long you can spend the money. Even if you have not planned that the money will be used on an occasion, it is important to know how liquid the investment is, that is, how quickly you can sell. You may end up in a situation where you suddenly need money.

You need to make this assessment for every investment you make. If you buy a house, it normally takes quite a long time to get it sold and get the money in your hand. If you invest in one of the most traded shares on FTSE 100, you can probably get them sold within minutes.

It is important to remember that there are no guarantees that a deal may be made. There may be technical problems - computers may be acting up and telephone lines can be overloaded. It can also simply be that there is no one who wants to buy what you want to sell.

pexels-photo-1166657

Start the year with a book!

Start the year with a book!

 

 

This week’s blog post might be short, but it’s very good. Trust me! This time I’ll give some of the greatest books about investing to start off your year with. They are not ordered in any specific order, but “One up on Wall Street is a good book for beginners.

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

pexels-photo-1166657

1. One Up On Wall Street – Peter Lynch

”Peter Lynch believes that average investors have advantages over Wall Street experts. Since the best opportunities can be found at the local mall or in their own places of employment, beginners have the chance to learn about potentially successful companies long before professional analysts discover them. This head start on the experts is what produces 'tenbaggers', the stocks that appreciate tenfold or more and turn an average stock portfolio into a star performer. In this fully updated edition of his classic bestseller, Lynch explains how to research stocks and offers easy-to-follow directions for sorting out the long shots from the no shots. He also provides valuable advice on how to learn as much as possible from a company's story, and why every investor must ignore the ups and downs of the stock market and focus only on the fundamentals of the company in which they are investing.”

 

2. The Warren Buffet Way – Robert Hagstrom

“Warren Buffett is the most famous investor of all time and one of today s most admired business leaders. He became a billionaire and investment sage by looking at companies as businesses rather than prices on a stock screen. The first two editions of The Warren Buffett Way gave investors their first in-depth look at the innovative investment and business strategies behind Buffett s spectacular success. The new edition updates readers on the latest investments by Buffett. And, more importantly, it draws on the new field of behavioral finance to explain how investors can overcome the common obstacles that prevent them from investing like Buffett. New material includes: * How to think like a long-term investor just like Buffett * Why loss aversion, the tendency of most investors to overweight the pain of losing money, is one of the biggest obstacles that investors must overcome. * Why behaving rationally in the face of the ups and downs of the market has been the key to Buffett s investing success * Analysis of Buffett s recent acquisition of H.J. Heinz and his investment in IBM stock The greatest challenge to emulating Buffett is not in the selection of the right stocks, Hagstrom writes, but in having the fortitude to stick with sound investments in the face of economic and market uncertainty. The new edition explains the psychological foundations of Buffett s approach, thus giving readers the best roadmap yet for mastering both the principles and behaviors that have made Buffett the greatest investor of our generation.”

 

3. Black Edge – Sheelah Kolhatkar

“Black Edge offers a revelatory look at the grey zone in which so much of Wall Street functions, and a window into the transformation of the worldwide economy. With meticulous reporting and powerful storytelling, this is a riveting, true-life legal thriller that takes readers inside the US government’s pursuit of Cohen and his employees, and raises urgent questions about the power and wealth of those who sit at the pinnacle of the financial world.”

 

4. The Intelligent Investor: A Book of Practical Counsel – Benjamin Graham

“The greatest investment advisor of the twentieth century, Benjamin Graham taught and inspired people worldwide. Graham's philosophy of “value investing”—which shields investors from substantial error and teaches them to develop long-term strategies—has made The Intelligent Investor the stock market bible ever since its original publication in 1949. Over the years, market developments have proven the wisdom of Graham’s strategies. While preserving the integrity of Graham’s original text, this revised edition includes updated commentary by noted financial journalist Jason Zweig, whose perspective incorporates the realities of today’s market, draws parallels between Graham’s examples and today’s financial headlines, and gives readers a more thorough understanding of how to apply Graham’s principles. Vital and indispensable, The Intelligent Investor is the most important book you will ever read on how to reach your financial goals.”

 

5. A Random Walk Down Wall Street – Burton G. Malkiel

“In today's daunting investment landscape, the need for Burton G. Malkiel's reassuring, authoritative, and perennially best-selling guide to investing is stronger than ever. A Random Walk Down Wall Street has long been established as the first book to purchase when starting a portfolio. This new edition features fresh material on exchange-traded funds and investment opportunities in emerging markets; a brand-new chapter on "smart beta" funds, the newest marketing gimmick of the investment management industry; and a new supplement that tackles the increasingly complex world of derivatives.”

 

More books will come at some point in the future, but this is good for now. If you know a great book about investing, please feel free to contact me on viktor@bifrostwealth.com.

Happy returns, Viktor

Time in the market or Market Timing

Time in the Market or Market Timing

Time in the Market or Market Timing?

 

2018 will be the worst year in a decade with FTSE 100 falling an approximately 12.5%. We now ask ourselves if it is the time you spend in the market that matters or if you can time the market to perform better? 

By Viktor, co-founder of Bifrost - Dec 31 2018

Business Insider stuff

After a year fueled by anxiety over trade wars, Brexit uncertainty, and fears over the global economy, it is now clear that the FTSE 100 suffered the biggest annual fall in a decade. The FTSE 100 shed more than £240 billion in 2018, from falling 7,687 at the start of this year to 6,728 at its close.

 

My point is that it is extremely difficult to time the market, which we learned not least in connection with the past year. The stock exchange trended downwards from January to the end of March and then recorded its highest listing on May 22nd. After May, the stock exchange sloped downward again and ended earlier today. In fact, if one had departed on a seven-month holiday without Wi-Fi and the opportunity to check on the portfolio had not seen any significant difference between March and October.

 

Fast movements in both directions are common and it is difficult to time them. Only this year we saw the stock market decline almost -10% from January to the end of March. Just under two months later, on May 22nd, we saw the stock market rise + 14.35%. Of course, this applies in both directions but over time we know that the stock market tends to rise. This is because the companies are growing, sales/profits are rising, and that the stock exchange occasionally tends to value the profits higher. What should not be forgotten is that the composition of the stock exchange, however, looks different. In the US, many of the largest companies in the 1980s were oil-related and today it is the tech that is the "new hot".

 

Market Timing or Time in the Market

 

This is something that is often debated among investors. Is it time in the market that, like the river, lifts stranded boats on the sand bed after ebb or should you jump from stone to stone and try to time the market?

 

The picture above from Business Insider shows how the return is affected if you miss some of the best days. During the 20-year period 1993-2013, it was enough to miss 10 days to almost halve the return. If we count on 250 trading days in one year, 10 days in two decades means 0.2% of the number of trading days, which makes half the difference, it is worth to think about.

I usually say that there are as many investment philosophies as investors and you should simply save and invest in the way that suits you best. One common objection is to ask how the above development had looked if you missed the 10 worst days. Of course, much better but, it requires a crystal ball to be able to know when the stock market's regular settlements come and when it is time to enter the market again and jump to the next stone, something which in any case I’m not able to do.

 

Happy returns and Happy New Year.

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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