Investing

This page is meant to show how and in what I invest. This is not intended as investment advice but feel free to copy any methodology I use.

Below are shown realtime updates of my portfolio holdings as well as the development compared to the leading danish stock index for the last year. I use a service called Shareville which can best be described as a social platform for investing.

The short version

  • Dollar Cost averaging = buying a fixed amount every month
  • 80% global stocks & 20% local Bonds
  • I use danish index investment funds as these are best suited for taxation purposes
  • My broker is Nordnet and I use the monthly savings feature (månedsopsparing) to buy stocks
  • I rebalance every 6 months

You can always check my portfolio at Shareville under the username Frinans

 

Investing as part of FI

When it comes to financial independence, investing is at the very core. If we look take a look at the get rich(er) formula it states that in order to get rich(er) you can:

  • Earn more,
  • Spend less &
  • Invest the difference

This simply means that investing is at the core of my quest for financial independence. The formula is easy to remember because it is ESI: Earn more, Spend less & Invest.

 

The three basic ways of investing in stocks and bonds

At the very basic level there are three ways of investing in stocks and bonds:

  • Select and buy single stocks or bonds yourself
  • Select and buy actively managed mutual funds
  • Select and buy passively managed mutual funds

For every buyer there is a seller and this means that unless you are okay with being average you are either going to win, beating the market, or lose which is to say underperforming the market. If you choose to buy single stocks you are effectively betting, that you can beat the market after costs, that you are better than average. If you choose to buy an actively managed mutual fund you are effectively betting that the manager of said fund can beat the market after costs, since it costs money to operate. If you choose to buy a passively managed mutual fund, or the likes, you are effectively getting the average minus the cost of the fund which is very low compared to the actively managed fund.

I have done all three, still do a little of the first, but mainly invest in stocks and bonds through passively managed mutual funds. If you believe yourself to be a better investor than the average, then by all means try and outperform the market. Through trial and error I am slowly convincing myself, and my ego, that I am not capable of beating the market, at least not when it comes singling out stocks. In Denmark there are fewer options still when it comes to passively managed options, but it seems banks and brokers are increasing their efforts to bring more options to the table when it comes to passive investing. I use Sparinvestindex as they are the ones with the lowest cost of operating. I have had various of their index products but now only use a global stock fund and a local bond fund:

Global stock fund

Local bond fund

The cost of this stock fund is 0.62% and the bond fund 0.31%, which is very low for danish standards. Basically there doesn’t exist a lot of index funds in Denmark. Interested in more on this check out this post from the subreddet dkfinance.

A very simple way of investing under danish law is using June by Danske Bank. It’s basically an all in one solution wrapped in a beautiful easy to use package. The reason I don’t use it, I only keep a small amount to follow it, is that it’s costs are higher than managing passive funds yourself. Junes funds are considered Index+, which means they are passive funds actively managed. So basically a manager decides how the total allocation is by using passive index funds. These index funds are ETFs which are taxed in a way that is not beneficiary for me. Anyone who is completely new to investing and do not wish to spend hours understanding various products might benefit greatly from June.

 

Taxes

An important aspect of investing is taxes. Let’s take a look at what I do to incorporate that under danish law.

Until now, something might be in the works to change this, using ETFs for anything other than pensions have not been a viable strategy for me due to taxes. This means I have had to use passively managed danish mutual funds as opposed to the widely popular ETFs. In Denmark stock gains are taxed at 27% for the first roughly 50.000 DKK a year and 42% for gains above this. A stock gain is when the stock or stock mutual fund is sold and a possible gain realised, or when dividends are paid out once a year. ETFs however are not perceived as being stock mutual funds and have been taxed as capital gains instead which is somewhere between 37%-42%, as I have under stood it. On top of this you have to pay taxes every year on unrealised gains, meaning increase in value. This is absurd and is the main reason I don’t use ETFs. If the rules are changed, which is being looked into, I might change strategy and use ETFs.

Naturally the taxes are different when it comes to bond funds because, well I don’t know why, I actually think it’s stupid. Gains when it comes to bonds are considered capital gains, and these are taxed according to your other capital gains and income, as far as I have understood it. The rates here, for me anyway, are probably close to the 42% from the stock example above. The bond funds are also taxed when dividends are paid out as well as when bond funds are sold.

 

Timing the market

I don’t believe I can somehow time the market meaning identify the tops and bottoms. As such I don’t try to time my buying, but simply apply dollar cost averaging as a method of buying. This means buying for a set amount of money every month. My Broker Nordnet has a monthly savings feature, where I can transfer money when I get paid, and on the 5th. every month a set amount of money is invested in the mutual funds of my choosing. This is how I buy my global stocks. This means that when the market is high and expensive I don’t buy as much, and when the market is low and cheap I buy more. This evens out the peaks and lows.

 

Keeping fees low

Keeping fees in check and low is paramount if you follow a passive investment strategy such as mine. This is because there is no trying to beat the market so the competitive element lies in keeping fees low. Why pay more for the exact same product right? On top of this I can completely avoid fees for buying when utilising the monthly savings feature of Nordnet, because they charge no fees for using this featue. I can’t buy my local bonds through this feature though, so I have to pay fees when buying bonds or selling stocks.

 

Risk tolerance

Risk tolerances can be very individual and I probably haven’t found my exact tolerance since I haven’t experienced a financial crisis in my relative short investing career. Usually you can take a test with the broker of your choosing to find your tolerance level or at least better figure it out. My plan is to have a split of 80% global stocks and 20% local bonds. This allocation describes my risk tolerance. The bonds don’t increase much in value but are a way of controlling risk as they don’t decrease much either.

Another major part of risk tolerance is diversification. Diversifying is risk decreasing in and of itself and buying big index funds is the simplest way of diversifying. This means that by mainly investing through index funds I make great use of diversifying.

 

Rebalancing

In order to keep the risk tolerance at an acceptable level rebalancing is needed. Some do it every month, some every quarter others once a year. I choose to do this every 6 months as I feel this is appropriate for my risk tolerance.

 

Bitcoin

I don’t consider Bitcoin an investment and therefore I haven’t written about it on this page. If you want to read more about my thoughts on Bitcoin and cryptocurrencies in generel, check out the page Bitcoin.

If you are interested in getting into Bitcoin you can sign up for Coinbase through my affiliate link <–. If you buy Bitcoin for a minimum of 100$, we both get a 10$ bonus.

 

Yet to come

I have yet to write about other types of investment such as peer to peer lending og real estate investing. I will add these once I actually add them to my overall portfolio of investments. I also haven’t written about my pension fund yet.

 

Conclusion

So all in all my investment strategy is as follows:

  • Dollar Cost averaging = buying for a fixed amount every month
  • 80% global stocks & 20% local Bonds
  • I use danish index investment funds as these are best suited for taxation purposes
  • My broker is Nordnet and I use the monthly savings feature (månedsopsparing) to buy stocks
  • I rebalance every 6 months