Selma's Investment Strategy: Part 1 - Investment Philosophy & Portfolio Creation
Welcome to our two-part series that dives deep into the heart of Selma's investment approach. Within two articles you will get to know everything crucial about how Selma creates and manages your individual investment portfolio.
When it comes to investing, there's no one-size-fits-all approach. Each investor has a unique financial situation, life goals, and risk tolerance. That's why your investment portfolio should mirror your distinct circumstances.
In this first article, you get to know how Selma crafts your personalised investment portfolio. You'll discover Selma's core investment philosophy, the factors Selma considers when creating your portfolio, and how your investment portfolio is structured.
The second part of this series deals about how Selma manages your investments after you have opened your account.
Let's get started!
Part 1: Selma's Investment Philosophy
Selma’s investment philosophy is all about the long game. We're not chasing quick riches here. The focus is on a time horizon of over 10 years, avoiding speculation and the risks that come with it. Selma aims at steady, thoughtfully considered investments.
So, what's our strategy? Global diversification. 🌍
Rather than limiting your investments to a single market or industry, we diversify investments across the globe. This way risks can not only be reduced, but also open up growth opportunities. The goal isn't getting rich overnight but building wealth at the right risk level, making sure your investments align with your life, financial situation, and long-term goals.
Selma is the right solution for you, if ...
✅ You want to invest for the long term.
Investing is not about quick wins but about steady growth over time. At Selma, we recommend an investment horizon of 5-10 years, allowing your investments the time they need to mature and weather market fluctuations.
✅ You want to invest in a globally diversified portfolio.
Diversification is key to managing risk. With Selma, your assets aren't tied to a single market. Instead, they are spread across various asset classes worldwide, ensuring a balanced approach that taps into global growth opportunities.
✅ You value transparency and independence.
Trust is built on transparency. Selma operates as an independent digital asset manager, which means we prioritise your interests. There are no hidden fees, kickbacks, or retrocession charges. What you see is what you get.
✅ You want to be supported by financial experts.
Your financial journey deserves expert guidance. At Selma, we don't just set up a portfolio for you; we manage it for you, ensuring it aligns with market movements and your evolving needs. Plus, our team is always on hand to provide personalised financial advice every step of the way.
✅ You are looking for a digital and secure solution.
In today's digital age, managing your finances should be seamless and safe. Selma combines cutting-edge technology with robust security measures, ensuring your investments are managed efficiently and protected from potential threats.
Selma is NOT the right solution for you, if ...
❌ You want to speculate and gain quick riches.
Selma's approach is rooted in steady, long-term growth rather than chasing immediate windfalls. If you're looking for speculative, high-risk opportunities for quick gains, our philosophy might not align with your goals.
❌ You want to meet your financial advisor for a coffee.
While we value personal connections, Selma operates primarily as a digital platform. This way we can offer our solution for a fair and transparent price. If face-to-face meetings and traditional advisory sessions are essential for you, our digital-first approach might not be the best fit.
❌ You want to actively manage your portfolio yourself.
Selma is designed for those who prefer a hands-off approach to their investments. Our experts curate and manage portfolios based on individual needs. If you're someone who enjoys the intricacies of daily trading and hands-on portfolio management, Selma might not be the right service for you.
Selma is ideal for you if you seek a long-term investment spread across global markets managed by experts.
Part 2: Understanding your financial life & goals
So how does Selma work? At Selma, we understand that every individual is unique, and so should be their investment portfolio. Instead of offering generic, one-size-fits-all solutions, we initiate our journey with a personal chat, led by your digital financial assistant, Selma. 🤖
In this chat Selma asks you 16 questions about various parts of your financial life in order to get to know you in detail. Pretty much Selma does what a good personal financial advisor should do.
What Does Selma Ask? Let's Break It Down:
- Age: Your age isn't just a number to Selma. It helps gauge the time you have until retirement and the potential wealth you can accumulate in that period. This insight plays an important role in determining the level of risk suitable for your portfolio.
- Savings rate: Selma pays close attention to how much you're able to save each month. The more you can set aside relative to your investment amount, the greater your capacity to take risks with your investments.
- Other investments: Selma takes a comprehensive look at your existing investments and their risk profiles. If a significant portion of your portfolio leans towards high-risk assets, Selma might suggest balancing it out with a more conservative approach to ensure overall stability.
- Real estate and mortgage: Selma evaluates the risk associated with your property holdings and mortgages. If the combined risk of your real estate and other investments is elevated, or if your mortgage outweighs your property's value, Selma might suggest a more cautious investment strategy. Additionally Selma excludes real estate from your investment mix if you already own property. As your property value and real estate investments have the same kind of risks (they react sensitively to changes in the interest rates).
- Loans and money you owe: Selma checks if the money you owe is covered by assets or not. If it looks like you have to sell (parts) of your investments to cover your debt, Selma recommends you a lower risk for your investments.
- Short-term financial goals: Selma makes sure the money you'll need in the next three years is kept safe and easy to access. Selma checks if you can pay those short term expenses from your cash and your monthly savings amount. If not, Selma reduces the risk of your portfolio.
- Your cash buffer: This is the money set aside for unexpected costs. While we typically suggest having a buffer equivalent to 3-6 months of expenses, the ideal amount can vary based on individual circumstances and comfort levels.
- Your investment horizon: Selma considers how long you plan to keep your money invested. For timelines under 10 years, Selma recommends avoiding the highest-risk strategies to prioritise stability.
- Your willingness to take risk: During your chat, Selma assesses your comfort with risk by discussing potential market downturns and your likely reactions. This helps tailor a strategy that aligns with your risk tolerance.
As you can see the initial conversation might seem pretty easy, but looking at your financial background is crucial. It ensures that your investment portfolio is tailored to you, reflecting your financial life's complexity.
The "perfect" investment for everyone does not exist.
Each financial situation and attitude towards risk is different, and how you invest your money should reflect this combination.
Part 3: Creating your unique, diversified portfolio
After Selma got to know you and your financial situation in the short chat, it's time to put the knowledge into action. At Selma, personalisation is at the core. Rather than offering a generic solution, we provide you with a tailored mix of investments. Your portfolio is calculated uniquely for you, however, each portfolio follows the same unifying principle.
One unifying principle: a global market portfolio
Despite the uniqueness of each portfolio, they all have one element in common: they follow a global market approach.
The global market portfolio is a representation of how everyone across the world invests. It's considered the most efficient portfolio available, balancing risk and return based on the collective wisdom of all global investors. This global strategy is based on the Modern Portfolio Theory, a Nobel Price-winning concept that's key to modern investment methods.
In addition to the global market portfolio, Selma adds components of Stability and Crisis Protection to your portfolio. How those components are set together depends on your unique financial situation and risk ability.
1. Growth: The engine of your portfolio 🚀
The main aim of this part of the portfolio is to generate growth. Therefore this part consists of investments that are riskier and that generate revenues and interest rate incomes for you. This part of your portfolio consists out of the following asset classes:
- Stocks: These represent shares in global companies. Selma diversifies your investment across regions like Switzerland, Europe, the USA, Emerging markets, and Japan. The goal? To spread risk and tap into global growth. Profits come from company growth, value appreciation, and dividend payouts.
- Corporate Bonds: Think of these as loans you give to companies. In return, they pay you interest. It's a way to earn steady income.
- High Yield Bonds: Those are loans to companies that are a bit riskier and thus pay out a higher interest rate.
- Private Equity: Those are investments in companies that invest in privately owned companies. Such investments are riskier but also provide a higher expected return.
- International Estate: Investments in this category are primarily through REITs (Real Estate Investment Trusts), which are trusts that own and lease out properties. Your potential earnings come from two main sources: the appreciation in property value and the rental income these properties generate.
2. Stability: The pillar of your portfolio 🏛️
This section acts as the solid ground beneath your portfolio's feet. In the unpredictable world of investments, this section ensures steadiness, keeping things balanced and offering reliable returns. This part of the portfolio consists of the following assets.
- Government Bonds: These are loans you provide to governments. In exchange, they promise to pay back with a set interest. It's a way to support public projects and earn steady, often lower-risk, returns.
- Inflation-linked bonds: Also known as TIPS (Treasury Inflation-Protected Securities), are a type of government bond designed to protect investors from the eroding effects of inflation. These bonds provide periodic interest payments and adjust the principal value in line with changes in the consumer price index (CPI), ensuring that the purchasing power of your investment remains relatively stable in an inflationary environment. This makes TIPS a popular choice for investors looking for a low-risk way to safeguard their money against rising prices.
- Swiss Real Estate: Investments in this category are primarily through REITs, which are trusts that own and lease out properties. Your potential earnings come from two main sources: the appreciation in property value and the rental income these properties generate.
3. Crisis Protection: The safety net of your portfolio 🪂
While investing always carries its share of risk, this section of your portfolio acts as a countermeasure against extreme market shocks. It's that extra layer of assurance.
- Precious Metals: Gold and silver act as a safety net for your portfolio. Selma uses ETFs to invest a portion of your funds in these metals, stored securely in Switzerland, offering a hedge against extreme market downturns.
Diversifying with the help of ETFs
To build your portfolio Selma uses Exchange Traded Funds (ETFs). With an ETF you don’t invest into one stock or bond but into 100s or 1000s of them reducing the risk of one single investment. There are 1000s of different ETFs to choose from, each focusing on a different industry, index, country and asset classes.
Selma looks through all available ETFs and picks the best ones from different providers in order to create your individual portfolio. In order to choose the right ETF we look at various quantitative (such as costs, liquidity, etc.) and qualitative factors (index coverage, replication policy etc.). You can read more about those factors here.
Growth, Stability & Crisis Protection
Your portfolio is a mix out of those three parts. The allocation is calculated uniquely for you and your personal situation.
Part 4: Sustainability Strategy
At Selma, you have the voluntary option to activate a sustainable investment strategy while still keeping your risk in check and adapting your portfolio to your unique situation.
Your investments remain globally diversified and tailored to your financial situation, in order to aim for the same risk / return profile and the same costs as in the basic setup. However, your portfolio will now consist of ESG ETFs.
What are ESG ETFs?
Think of ESG ETFs as a filter that ensures only the "good" companies end up in your investment portfolio. Companies that do not operate sustainably or ethically are simply filtered out.
ESG stands for "Environmental, Social, Governance". These ESG criteria are standards by which the sustainability and ethical impacts of a company are assessed.
- Environmental: This is about how a company handles its environmental impacts. This includes topics such as energy consumption, waste management, and dealing with natural resources.
- Social: This aspect refers to the company's dealings with its employees, suppliers, customers, and the community in which it operates. This includes fair working conditions, human rights, and the common good.
- Governance: This is about the leadership and management of a company. Aspects such as transparent business practices, ethical principles, and the structure of the board play a role here.
You can activate your sustainable strategy with one click in your profile.
Part 5: Summing it up
At Selma, the goal is to offer everyone a personalised investment portfolio that is tailored to their financial situation, risk ability and investment goals. Investing isn't a one-size-fits-all journey.
The Selma philosophy is rooted in understanding you. The commitment is to long-term growth, focusing on building wealth steadily over time rather than chasing quick riches. We believe in a globally diversified strategy, ensuring that your investments are spread out, reducing risks, and aiming for consistent growth.
Selma is fully independent and operates with a strict no-kickback policy. This means your interests are our priority, ensuring that our recommendations are unbiased and genuinely suited to your needs.
Now that you know how your portfolio is crafted and our core investment philosophy, the next step is to get to know the management aspect. In the second part, you'll delve deeper into how Selma manages your portfolio once you open your account.
Niklas is taking care of Selma's digital marketing channels. He is an expert in communication, holds a degree in international economics and is way too passionate about. 🎾LinkedIn