They will also make it possible to define the type of investment that will suit you best in terms of risk and return, taking into account how long you wish and can stay invested, and your reactions to uncertain events. These questions are important to define your objectives and your investment philosophy. what ethical values are important to you when investing in companies?.how long can you stand losing before you panic sell?.There are a few crucial questions to ask yourself before starting your investment journey. As demand from investors looking for socially-responsible investment products is becoming mainstream, governments and institutions from around the world such as the UN, are working with the financial industry to offer a legal framework that will be accepted worldwide. Ethical values and beliefs are subjective by nature. This being said, the definition currently in place with regards to ESG criteria isn’t clearly established yet. The lack of ethical concerns in the selection of companies within VWCE can be a drag on investors wishing to follow responsible investment ethics. For instance, an investment in VWCE means an investment in companies that manufacture and sell controversial weapons. Due to its globally diversified nature, tracking the performance of close to 3,700 companies of all types around the world, you can't consider VWCE to be sustainable in terms of environmental, social, and corporate governance criteria (ESG). VWCE does not apply sustainability criteria when selecting the companies that it invests in. The consequence of selling your portfolio at the wrong time because it was too risky for you is much worse than losing some of your bond profits to the tax man. Yet this doesn’t outweigh the argument for holding bonds in your portfolio. It is important that you figure out the taxes you could end up paying before you select your investment.įor instance, bond and mixed funds held by Belgian investors are subject to the Reynders tax, which is 30% charged on capital gains. The difference in the tax treatment will come from the fund’s domicile, its composition and the way it handles dividends. Indeed, as we address in our article, the tax treatment of an ETF will impact the performance and return. When considering the right portfolio that matches your goals, you cannot steer clear from the tax aspects.
This is because stocks are a much riskier asset than bonds. The drops for stocks are sharper and take a lot longer to recover than for bonds. The downturns of the 100% VWCE portfolio are much deeper and wider than the portfolio with bonds. 60% VWCE + 40% bonds portfolio (from Backtest) To show this, let’s compare the drawdown of 100% VWCE and a portfolio of 60% VWCE and 40% bonds: This means that going for a 100% equity strategy or not should come in line with how smooth you wish your returns to be, to offset the potential impact of a downturn over your investment journey. In finance speak, we say that there is little correlation between stocks and bonds. So the losses of one type of asset can be partially offset by the gains of the other. Indeed, it turns out that oftentimes when stocks are dropping, bonds are rising, and vice versa. and that’s when bonds come into play.Īs Ben Felix explained in his interview with us, bonds are designed not to seek return, but to decrease volatility and stabilize a portfolio. In finance jargon, we say that stocks are highly volatile and do not prevent systemic risk, that is the risk of a global market meltdown. They can go up and down very quickly, sometimes as much as 45% in a good year like 1999, but also as low as -40% during a "once in a lifetime" crisis like in 2008. In the world of finance, this risk translates to greater fluctuations in the prices of stocks. Higher returns always come with higher risks. There is no sign that this trend will stop: the drive to create and innovate is an innate trait of human beings. Global stocks have made an average annual return of 5.2% over the last 120 years, and that's after inflation. Throughout the decades, companies all over the world have continued to innovate and thereby yield solid gains to their investors. The evolution of VWCE since 2005 (from Backtest) Finding the portfolio of ETFs that lets you sleep at night The role of stocks and bonds
0 kommentar(er)
