How does Selma put my investments together?
Updated
by
Marco Barmettler
Getting to know you:
1. How you take care of your money so far
Have you been saving your money mostly on your cash account, or are you already invested in funds or bitcoins?
How you have been taking care of your money can have a large impact on your future investments. Knowing your past investments, Selma is able to calculate what kind of investments you need to achieve the optimal balance for your life situation. That way Selma can help you avoid being too exposed to a single source of your wealth.
This also includes your non-monetary wealth, like cars, art, or a house/apartment. Often they are forgotten in the financial analysis, but they can also keep, gain or lose value. Even more importantly, their value can move up and down in sync with financial markets. So, it needs to be considered to avoid being exposed to one major risk again.
In summary, the following information pieces will be considered in this section:
- Real Estate ownership
- Debt (e.g. mortgage)
- Major illiquid items of wealth
- Current investments outside Selma
- Risk type of current investments
2. Your savings & cash needs
Higher returns come with higher risk. Thus it is important to understand how much risk you can and should take. On one hand, you want to achieve something with your investments, on the other hand you may have planned expenses coming up (e.g. buying that flashy new computer, or renovating your apartment).
To sort this out, Selma calculates how much you should set aside monthly for spending needs, and how much you should be able to invest. Planning smartly ahead, Selma calculates your potential future savings including a growth rate that depends on your age, the type of your work and the stability of your income. The savings potential of a 27-year-old freelancer with fluctuating income is quite a bit different in comparison to a 43-year-old university professor with a steady monthly salary.
In this regard, it is also important how long you would like to invest your money. A long time horizon of more than 10 years is recommended. Over a time span of 10 years or longer, the probability of losses is extremely low and the outlook for strong returns very good.
Ideally, you don’t want to have to withdraw investments after a short time again to pay for expenses. This may cause you to leave the financial market at a bad time, and to reinvest later at higher prices.
In summary, the following information pieces will be considered in this section:
- Your age
- Desired cash buffer
- Planned expenses
- Monthly savings
- Current cash balance
- Investment time horizon
3. Your relationship with risk
Beyond your ability to take risks, Selma evaluates how comfortable you are in dealing with losses. It combines your initial self-assessment with a few tests of your emotions and reactions to loss scenarios.
This is important because your investment plan can only be good if you can also stick to it if and when times are getting harder.
In summary, the following information pieces will be considered in this section:
- Investment goals
- Personal relationship with risk
- Perception of a hypothetical loss scenario
- Reaction to a hypothetical loss scenario
Creating the ideal investment plan for you
After Selma got to know you a little better, she creates your ideal mix of investments based on your profile. Selma does that by:
1. Excluding things you have already invested in
To prevent you from taking too much risk in certain areas, Selma excludes for example real estate investments in case you had already bought a house or own an apartment.
2. Putting together a perfect mix of growth vs. stable investments
Based on your investor profile Selma calculates which part of your money should be invested in growth-focused investments (e.g. company shares) vs. in more stable funds that focus on keeping their value (e.g. loans to countries and companies). Generally, Selma looks for products that offer the best diversification at the lowest cost for you.
If you prefer sustainable over traditional investing, Selma will pick only funds that fulfill the highest common "SRI" criteria. Thankfully, the fund offering has improved so much that you don’t have to accept any drawbacks in terms of diversification or cost. Selma creates a portfolio for you that is just as well diversified and low-cost as the traditional ones!
3. Spreading your investments across the globe
To make sure your investments aren’t dependent on the performance of single companies, industries or countries, Selma spreads your risk across the globe. This also provides you access to regions with higher economic growth rates.
As a result, your Selma portfolio can include many, if not all, of the following investments (depending on your investor profile):
- Swiss company shares
- International company shares (USA, Europe, Emerging Markets, Japan)
- Global real estate
- Swiss real estate
- Global listed Private Equity shares
- Global corporate bonds
- Global High Yield bonds
- Global government bonds
- Precious metals (gold, silver)
Depending on your investor profile, up to 100% of your money may be put into “growth” assets (i.e. mainly company shares), which tend to have higher returns, but also higher risk.
