May 24, 2021
Concerns about inflation and interest rate fears are currently causing major movements in the stock markets. Investors who have a long-term orientation, invest without emotion and diversify their investments can easily meet these upheavals: Those who invest carefully and well diversified have proven to achieve attractive returns.
By Tobias Schmidt, my-si
Despite low interest rates and concerns about inflation, many Germans have reservations about the stock markets. But if you want to build up or increase your wealth, you can do so on the capital markets today and not with a savings book or current account. The right strategy is important. This means investing long-term from the outset, diversifying widely, leaving emotions out of the way and investing them cost-effectively. At my-si, we call it: investing without any forecast.
The American economist Eugene Fama created the basis for forecast-free investing with his efficiency market theory. His approach: The current courses contain all available information and data. Accordingly, forecasts do not offer anything that the market is not already aware of. The current rates are made from previous information; But nobody knows which news, which event will influence the prices next. Eugene Fama’s conclusion: the individual cannot be better than the market in the long run. So much for the theory, which we at my-si agree with 100 percent.
In practice, however, not all information is available to every market participant. The my-si investment philosophy therefore combines the forecast-free allocation of investment markets with the forecast-oriented selection of investment funds. The decision about which markets to invest in is therefore made without forecasting and betting on the future, but purely risk-oriented based on the optimal diversification of the markets. The allocation approach is called “Equal Risk Contribution” and, as the name suggests, it distributes the weights of the individual asset classes in such a way that they all make the same risk contribution to the overall risk of the portfolio.
So there is no concrete “bet” on a certain market because, like Eugene Fama, we do not believe that market developments can be foreseen in the long term. However, this is different when it comes to implementing individual stocks or bonds. Precise knowledge of individual companies, their competitiveness and their future positioning can definitely pay off here. This information is not necessarily available to every market participant.
my-si: forecast-free allocation and forecast-oriented fund selection
For this reason, at my-si, the selection of the funds in which investments are made for implementation is based on the forecast-oriented f-fex fund rating. This evaluates funds relative to their competitors in the respective peer group (e.g. “European stocks” or “Emerging markets stocks”). Depending on the market, we sometimes choose actively managed funds, sometimes ETFs – depending on what fits better in the respective market segment. Because there are certainly markets in which it is difficult to find actively managed funds that do well over the long term. Then we’d rather choose an ETF. With this combination of forecast-free allocation and forecast-oriented fund selection, the my-si investment strategy is especially designed for a long-term investment horizon.
With this investment concept, we see long-term returns of five to six percent per year in medium risk class 3 as achievable. The strategy of a forecast-free allocation of the investment markets has other advantages in addition to the return: It is low-risk thanks to a broad diversification. It is timeless, as entry and exit times are not as important as when betting on a specific market. With this investment strategy, there is therefore no need to switch over too often. On the contrary. This means that the forecast-free approach is also comparatively inexpensive – because the old stock market adage that “back and forth makes pockets empty” still applies, of course.
The markets reward discipline, long-term investment and diversification. The diversification must, however, be tailored to the individual risk tolerance of the investor, because investing without forecasting has nothing to do with speculating, rather the long-term accumulation of wealth is the goal.
We at my-si also pursue this goal for our investor community: With our diversified portfolios and the individual classification of investors into certain risk groups, it is ensured that the investment decisions match the investment mix of the investors. The weighting and proportions of the individual asset classes depend on the individual’s willingness to take risks.
my-si: Intelligent algorithms for investment decisions
The my-si investment strategy provides that all investment decisions are generated by intelligent algorithms. The respective allocation is checked automatically once a month. If the intelligent algorithm determines that the portfolio no longer meets the investor’s risk specifications or the funds in the portfolio are no longer promising, the system automatically suggests a corresponding adjustment. The investors decide for themselves whether to accept the proposal.
In order to be prepared for short-term, particularly extreme market fluctuations, my-si has integrated a “market stress indicator” into this system. It gives signals and adjustment rules in the event of extraordinary market distortions.
my-si invests exclusively in ESG-checked funds with an ISS ESG fund rating of at least four stars. From this first fund selection, in a second step we select the funds whose risk / reward ratio achieves a top rating, i.e. a rating of A or B, in f-fex fund ratings. This enables us to achieve attractive returns, to invest sustainably AND to offer the community a benefit – and that is exactly our goal!
Conclusion: diversify your capital widely, be disciplined and invest long-term. Because the statistics show: stocks achieve a positive development in the long term.
More about my-si at: www.my-si.de
About Tobias Schmidt:
Dr. Tobias Schmidt is the founder and CEO of f-fex AG, a FinTech company and digital solution expert for the management of fund-based investment strategies. Before joining f-fex, Tobias Schmidt worked for the asset manager FERI AG for 18 years, most recently as CEO of FERI EuroRating Services AG. There he was responsible for the group’s rating and research business. Tobias Schmidt was also active in research: At the Center for European Economic Research (ZEW), he worked in various international research projects on the economic effects of EU climate protection obligations. He studied industrial engineering in Karlsruhe and received his doctorate in economics from the University of Mannheim.
Tobias Schmidt has more than 25 years of experience in fund analysis, the development of rating systems and portfolio optimization. He passes on his knowledge in numerous publications for specialists and executives, as a sought-after speaker and interview partner. In lectures and contributions for national and international media, he also provides private investors with knowledge on the subject of financial investments, investment funds, real estate markets, the global economy and much more. He taught as a lecturer in the JurGrad Private Wealth Management graduate course at the University of Münster. My-si investors now also benefit from his knowledge.
As always, the assessments are subject to the following caveats:
Legal notices / statements about the future reservation
Statements on previous performance, simulations or forecasts of financial instruments, financial indices or securities services are not a reliable indicator of future performance. Changes in the general economic situation, changes in the competitive environment, developments in the capital markets, changes in the law, exchange rates and the consequences can increase the likelihood of deviations or bring about.
The performance and assets shown may differ from the official calculation of the funds referred to. This is based on simplified expense and income accruals as well as the price sources used by f-fex for valuation rates within the scope of customary market care, which may differ from those used in the fund calculation.
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