Seven Investment Advice

1. IT’S NOT ABOUT TIMING THE MARKET, IT’S ABOUT TIME IN THE MARKET

There is regular talk about the return you can achieve by “timing” your investments with market movements. There are those who manage to time the market, but you also risk breaking down and with it you will lose more than you would do by staying invested. The reason for this is that by selling out on what is considered “bad days” you can risk missing the rise in “good days” that often follow in the wake of a market decline. The value of staying invested in the market, sitting through crises and wars, has repeatedly proven to yield better returns than one achieves by selling out, to later time in again. Therefore, professional investors such as the managers in Arctic Asset Management do not try to time the market, but they make investments they believe will create long-term value for the portfolio.

2. CASH IS NOT KING

Through the 80s, 90s and early 2000s, bank rates were at levels that kept pace with inflation so that money’s purchasing power was retained, and sometimes increased, by letting it stay on savings accounts and earning interest. In the last 10 years, however, the deposit rates have been so low that inflation has gradually depleted the purchasing power of the money on the bank account. The belief that money is safe on a bank account is a misconception. To maintain the purchasing power of money, it must be placed in a way that produces a return that is higher than the level of inflation. But that doesn’t mean you need to take a lot of risk. Arctic Return is a low-risk interest fund that has historically yielded significantly better returns than bank deposits.

3. THE VALUE OF COMPOUND INTEREST IS OTEN UNDERESTIMATED

An average return of 7% per year may not sound like much, but if you reinvest that return every year then you’ve doubled your money after 10 years. Why? Because by reinvesting the return, you will in the next period get a return on both the initial investment and the return (interest) you reinvested. This is called the compound interest. Then it may be tempting to calculate how long you have to invest in order to double your money. This can be calculated by dividing the number 72 by the expected return. It takes a few years before the initial investment is doubled. This is also known as the “72 rule.” – Yes, and 72/7 = 10.

4. RISK AND RETURN IS USUALLY LINKED

What one considers a good return is individual and depends on which comparison basis one uses. It is important to remember that return and risk are generally linked. If you want to achieve high returns, you must be willing to take risks. High risk also means that you have to be prepared to lose all or part of your investment. Through spreading the risk on more investments, you can still earn a good return. One such opportunity is to invest in funds. You may miss a potential giant profit on a single investment, but the risk of losing your investment is small as long as you invest the money with skilled fund managers, and take the time to help.

5. IT IS SELDOM WISE TO KEEP ALL YOUR EGGS IN ONE BASKET

Of course, you may be lucky to bet on the winning horse, but the risk of going home without winning is greater than the likelihood of winning. That’s why it’s important to spread your investments. This is what we call a diversified investment. By investing in funds, you invest in a diversified portfolio consisting of several companies that are influenced by various factors. It may also be advisable to divide the money into different funds. Money you don’t want to take a lot of risk with can be placed in an interest fund such as Arctic Return. This can be money you know will spend on remodeling the bathroom in half a year, or want to have as a security next to the savings account. If you can tolerate some more risk, then Arctic Nordic Corporate Bond is a good option. It swings a little more, but it also has higher expected returns. If, on the other hand, you have a longer horizon and can keep the money invested for several years, then stock funds are well suited. Arctic Nordic Equities invests across the Nordic countries. The portfolio is therefore well diversified with investments in many different industries, of which reduces its risk.

6. EXPECT MARKET SWINGS - IT IS COMPLETELY NORMAL

One can get nervous when the market falls. An important thing to remember when this happens is that it is completely normal for the the stock exchange to move at least 10% from year best to the year's lowest. A lot of people stop investing when the market is low, and wait until it gets up again. This is a bit like waiting to buy new pants until they are no longer on sale, and rather buying it at a higher price. In contrast to shop sales, the markets turn faster than we think. History shows, therefore, that it often pays off to sit calmly in your boat. Should you have some extra money on your hands, you could even come over a few bargains that can help you gain even better returns in the long run. 

7. KEEP CALM AND FOLLOW YOUR STRATEGY

Psychology known to be a factor that plays into the market. It’s easy to get caught up when newspapers write about stock exchanges stumbling or investors who got lucky on the stock exchange. Still, the advice is: sit calmly in your boat. Why? Because before you have decided to sell you out, the market has often fallen even more, and before you dare to get in again, it has probably surpassed the price you sold at. The most important thing, therefore, is to stay calm and to do good preparations before investing. If you have invested in a fund managed by skilled professionals, you should leave your money be, and keep them there over time, through the market's ups and downs. This is at least what history tells us.