The terms “loans to companies” and “country loans” describe the asset class of bonds. With a bond, investors lend money to companies or governments for a certain period of time. During this time, companies or governments pay an interest rate on the money lent, with the promise of paying the money back in full once the bond expires.
Investments in bonds are done via ETFs that Selma selects for you. This allows you to diversify your investments over many different companies or countries at the same time. You can see the different ETFs that Selma uses for your investments in the advanced view of your "Planet".
What kinds of bonds does Selma use?
Corporate bonds (or “Loans to companies” as we call them): Your money is lent to many different companies around the world. Those companies must have a high rating, meaning they must have a strong financial situation.
Government bonds (“Country loans”): Your money is lent to a number of industrial countries around the world that are assigned a high rating by the rating agencies (“investment grade”).
In general, bonds can have a more stable value development, but they also offer a lower outlook for long-term return as, for example, equity.
If you want to learn more about potential price fluctuations of investment in bonds, read our article on the topic.
Why does Selma invest my money in bonds?
Whether bonds are part of your portfolio is defined by your individual investor profile.
Selma makes sure that your long-term investments fit your life situation.
For some investors, including bonds in a diversified portfolio can be a smart choice –
particularly if you have a lower willingness for risk. Using different asset classes, like bonds, helps to diversify your investments – not putting all your eggs in one basket. This allows you to better balance risk. Selma decides, based on your investor profile, which bonds to include and to what extent they should be part of your long-term portfolio.
The higher the percentage of bonds, the lower the ups and downs of the value of your portfolio (“risk”) – but it also lowers the outlook for future returns.
When does Selma invest in loans to companies or country loans?
Your investor profile determines whether bonds are part of your portfolio or not. Selma looks at the following factors:
Is your ability to invest strong enough (i.e. your financial situation)?
Is your willingness to invest with risk high enough (defined by the answers you give regarding “risk”)?
Is your investment horizon longer than 10 years?
If the answer to any of these questions is no, Selma will automatically include bonds in your portfolio.
If the answer to all these questions is yes, Selma will reduce or exclude bonds from your portfolio and that money will be invested into other growth parts of your portfolio.
How often is the extent of investments in bonds in my portfolio reevaluated?
In general, this is checked by Selma whenever you update your investor profile. Your investor profile defines how much and which kind of bonds should be part of your portfolio.
I have updated my profile but Selma has not made any changes to my portfolio
This can happen. Not all updates to your profile necessarily mean that your long-term investments should be adjusted, too. Your whole investor profile determines your long-term investments. For this Selma looks at many different aspects of your profile, hence an update of a single aspect might not alter Selma’s view on your long-term investment plan. Keeping the big picture in mind is important.
Does the sustainable preference affect my equity percentage?
No – the general logic of how Selma diversifies your investments among different asset classes (e.g. bonds) is not affected by your investment preference (classic or sustainable).
What about my investments in pillar 3a?
Read our article about this.