What is a good return over the long term?

I often talk about what the maximum return is over a long period of time that can be achieved without taking excessive risks. After all, there are lots of financial products in the market for private individuals and everyone is trying to outdo each other to get investors.

If we take a step back and think about what we should reasonably expect for returns, I always come up with a figure around 7 – 8%.

If we could find a single product that could give us 7 – 8% return with small risks year after year, it should mean that all other investments really became uninteresting except to have as some spice in an investment portfolio as a lottery ticket.

Take, for example, a portfolio of dividend paying shares, what can it reasonably generate over time? The yield from the dividends can probably reach up to 4, 5 or 6%, but is it worth the price risk?

At Untie, we today produced a very interesting chart showing the return on Untie Lending’s Preference Share compared to the Swedish stock exchange that we represented with the index OMXS30.

Looking at the chart, one can almost believe that we have plotted a linear regression as the OMX curve bounces back and forth around this fixed rate of return from the Preference Shares.

Over the past 12 months, the stock market has vibrated up and down since August having climbed up over 20% in return. Everything was then erased in just one week and the stock market’s return is now at 6.11%. Anyone who has invested in an index fund that reflects the OMXS30 has thus had to endure a huge roller coaster in order to ultimately arrive at a return that is inferior to the fixed 7% generated by the Preference Shares without any stomach ulcer!

The chart from Untie can be viewed below.

We have sacrificed short-term buzz for long-term scalability, was that the right thing to do?

When building a new company there are two ways to go, either you focus on selling “Blue Sky” where you build a nice facade. With this mindset you go for the money before you have created anything and try to raise capital for your endeavour very early.

The other approach is to build a viable business first with small means before you start looking for external financing. With the later approach my experience is that you sacrifice building buzz about your company because everyone is busy building stuff and trying to do business instead of talking about the business that you think about doing.

Instinctively I like the latter approach and that is the way we have done it with both Bricknode and Untie Group. We have built very efficient operations and real enterprise-like IT-infrastructures which you usually only find at Fortune 500 companies, but the problem is that basically no one, or very few, have actually heard of us.

I keep debating with myself which way is the optimal one, to reach the kind of scalability that we can have you must build a great base for your company or you will fail as soon as you start scaling. At the same time if no one knows about what you have done it is all for naught.

In the end I hope that future investors will grasp what we have under the hood and that we will gain enough interest for these great teams to really fly. What a feeling it will be when we have the resources to actually hire new staff members each time that we have a great opportunity or when we need to fix some stuff internally instead of having to squeeze water out of a rock with current resources 🙂

We are 10 years into our creation now and somehow, we have managed to invest more than EUR 17 million, where most come from generated income, in Untie Group and more than EUR 8 million in Bricknode, where most is generated SaaS income too.

Now is the time for us to start building buzz and tell the world that we exist!

I don’t want to be remembered as a profit optimiser

I always start with the Why? Why am I doing what I am doing? Why have I been working day and night for 20 years? From where do I get fuel to do this day in and day out?

What drives me is leaving a legacy when I am done of having made something better for society. 20 years ago, I thought that I emerged myself in the financial markets to produce profits for myself and my family so that we could be financially free.

It turns out that this was only a piece of the puzzle and not the whole story. I like to think that some subconscious plan drove me to this and forced me to learn everything about the financial markets and how everything worked behind the scenes. This has given me and my team the knowledge to master all the required technology to create, launch and manage basically any financial product known to man.

By building and analysing trading systems I learned how to compare apples to apples and with a few simple data points quickly understand what a good product is and what is a bad product.

I have learned the hard way how important it is to select the right partners and investors while being able to control the decisions that are going to be made for the future. Before sharing control, the creation must be mature enough and the culture you stand for firmly established in the DNA of the company so it can survive.

For the past 20 years I have probably made every mistake in the book, but I could always count on my own drive, motivation and relentless hard work to pull me through.

To have the opportunity to create a better financial future for people I have decided to do stuff that I classify as “a means to an end“. Let me illustrate this with some real world examples.

My main vision is to create a financial hub for families where they also can manage their small businesses. Sometimes I call this “Spotify for finance” because then people usually understand in broad terms what I mean 🙂

In 2009 I envisioned that the time would come when people consumed numerous financial services at the same time and would have to log on to multiple places to manage these services. If these services offered API’s we could build a master app that could manage them all I thought.

The problem was that none of these services offered any API’s and the big banks did not want to play either. I thought that this would change eventually when consumers would demand this, but I could not base the viability of my idea on the big financial institutions turning around and becoming “open”.

So, I decided to start Bricknode where the idea was to build a cloud based software platform that financial institutions could use to manage their financial products and their customers. It would have a complete API to enable other applications to interact with it and do everything that the software platform itself could do. When building this we needed to understand everything that goes on behind the curtains for most financial products in the world.

To gain this insight we onboarded customers in various segments, some of them offered bad products and some of them good ones. This was one example of a “means to an end” where we “enabled” these bad products, but it was in the interest of gaining knowledge and the future greater good that could come out of it.

The next example is our lending operation in Untie Group. As I touched upon earlier, my belief is that a true financial hub cannot be built by the involvement of traditional financial institutions because mostly they are out to optimise their own profits instead of the financial lives of their customers. My belief is that you should first focus on bettering the financial lives of your customers and then your own profits will follow as you create value and then you should invest those profits to create even more value.

Another reason why the financial hub is a very long-term project is trust. Why should anyone trust that the companies that I and my colleagues  have created are out to do any good? Well, the only way to build that trust is to prove it and that will take time, but we will do it incrementally. If we succeed all of us will be better off in the end!

For us to be long-term, sustainable and independent we have our own financial products that create the required cash flow. Among other things, we have been issuing unsecured loans since 2011, the vision has always been to create better and more transparent products year by year than what is currently on the market.

The annual interest rate level for unsecured loans in Sweden is generally between 6 – 30 % depending on duration, fees and other terms together with the risk profile of the customer. There is a misunderstanding among the general public that only shady basement operations offer these types of loans, but this is not the truth. There are established companies such as Ikano Bank, ICA Banken, Norwegian and the successful company Klarna to name a few.

Our vision for lending is to be able to offer the best possible products based on the risk we take. This is a very important part of our business as it gives us the freedom to think long-term with our investments.

The year 2020 will be an interesting one for us, Bricknode is ready to scale up and start growing its revenues after 10 years of development and learning. The same is true for Untie Group where we are finally ready to get the financial hub up and running with our early version at Untie.se.

Both companies will raise some capital during the early part of the year, and we are looking forward to finding some good long term partners! Please get in touch if you think that you are one of them!

According to Kleiner Perkins we are in the sweet spot!

A very encouraging article was published today by Forbes regarding FinTech trends for 2020.

In the article Desai Weiss says that people will not be able to keep track of their finances in 10 different apps, that is music to my ears! I have been saying that this would happen since I started Untie Group and Bricknode in 2010!

Desai continues to say that there should be some kind of “super app” coming along that will keep track of it all for us 🙂

This is exactly why we have spent more than 10 years building our “engines” for Untie.se which is now in beta mode and coming along nicely with frequent releases.

The third trend concerns infrastructure investments where companies that will help manage compliance, fraud and other building blocks should see money going their way. This is right up the alley of Bricknode where we have built what I call an operating system for financial services!

It is great fun to see what is happening within our industry and I hope that both Untie Group and Bricknode will get some traction from investors during 2020 so that we can start expanding our marketing and sales efforts. No matter how good your product is you still have to fight like crazy to get your name out there!

Give your kids a head start in life by investing with reduced tax

Give your kids a great start with financial stability

Everyone wants to give their kids a good start in life, one big part is financial stability. With some capital your kids might be able to buy their first resident or in some other way take their first step towards independence.

I save SEK 1,000 per month for each child which I invest in preference shares with fixed dividend through Untie Group where I also obtain monthly payouts. I am using the return to buy more preference shares and throughout time this produces compounded interest.

The minimum investment for these preference shares is SEK 2,000 so every other month I can buy new shares. After about two years the monthly payout is enough to purchase more preference shares and it accelerates from there.

The cash return gets larger and larger and the pace of re-investment increases as well. After 18 years the amount is larger than SEK 350,000 after tax with the reduced Swedish tax rate of 25 % instead of the regular 30 % on capital gains.

The total amount is now SEK 355,078 which is made up of SEK 216,000 of deposits and the remaining SEK 139,078 is pure return after tax.

The chart below shows the relationship between the capital deposited and the generated return, notice how the return accelerates over time.

It is never to late to start investing for your kids, through smart investments you can almost double the invested capital during a period of 18 years.

You can find more information at www.untiegroup.se and www.konsumenternas.se.

Good luck with your investments!

Invest the dividends from your small business with 0 % tax and secure your pension

Small businesses in Sweden can take advantage of an annual amount of SEK 171,875 (2019) which can be paid out as dividends with a tax rate of 20 % instead of the regular +50 % that you get charged from the 3:12 regulations. Any amount that you don’t pay out can be saved for the future and also transferred to another family member.

I have given a lot of thought to weather I should keep capital in my company and receive returns there or if I should issue dividends and invest the money privately.

I now think that I have found the solution and it is called unlisted preference shares!

If I invest in unlisted preference shares through my company the received interest will be tax free, the tax has already been paid by the company that issued the preference shares. This means that my actual received interest will be higher than the terms of the shares states.

If I invest in unlisted preference shares that pays 7 % interest it means that my actual return is 8.8 % which has a huge effect for a long term investment.

The frequency of payments also matters a lot, if the issuing company pays out the interest monthly it means that I can re-invest the cash and quickly compound my interest.

In our company, Untie Group, we are launching our own unlisted preference shares in 15 hours which features all of the properties mentioned above.

Let’s say that we invest our SEK 171,875 that we make in profits each year , meaning an investment of SEK 14,323 per month with an interest of 7 % and 0 % tax, what would the result be over a period of 20 years?

After 20 years we have obtained more than SEK 7,500,000 and each month we are going to receive a payment of SEK 43,500 which we can issue in dividends against our saved annual amount or use in another way.

Best regards,

Two potential outcomes for S&P 500

A quick market update for you today. I am tracking two viable wave counts in the S&P 500. My primary long term count is shown below.

This is a very negative count and labels the drop that recently bottomed as a first wave of a larger 5 wave decline. On the short term chart it looks like this.

I can definitely see a five wave decline here and I played the last parts of wave (v) by buying some credit bull spreads in the S&P 500 futures since volatility was priced up and expensive. This has now contracted thanks to the bounce and profits are booked so now I am only watching to see how this plays out. If the primary count is correct then the bounce should fail very shortly.

The alternative count is much more bullish and shows that we could just have finished the large wave IV and that wave V just began.

In the short term chart it looks like this.

If this is going to be valid then S&P 500 cannot drop below the bottom at 2603 so that is a good level for a stop.

Have a great day!

Comparing investments in loans with the stock market

With all types of long term investments the compounding interest effect is the one that determines how value will develop over time. Have a look at the video below.

This is the reason why I have a very hard time finding an investment that generates better returns then investments in loans. The chart below shows the projected return at Kreditborsen (the credit exchange) compared to the Swedish general stock index called OMX during the past 20 years.

The chart above shows the return of 50,000 invested 20 years ago, in 1998, without any additional investments.

Having some fun at Untie Group!


Getting ready for investments this autumn

The most important decision I can make as a trader is to decide when not to trade.

Unfortunately, this spring and summer have been plagued by tragedies which were private in nature. Early on I decided not to trade while this was going on. First and foremost trading is a psychological challenge. If I have another issue that puts a psychological toll on me I should not trade.

During this time it has been awesome to have other investments that have generated passive income for me. I mostly use the peer-to-peer lending service called Kreditbörsen (Credit Exchange) which I founded a while back.

At Kreditbörsen I receive constant returns of around 10 % per year without having to get engaged in any daily decisions. I simply enter how much I want to lend to each individual borrower to control my risk and then Kreditbörsen does the rest.

The chart above is copied from one of my accounts with Kreditbörsen. Since May 2017 I have kept 45,000 in my account and since then I have received 12 % return after tax which I think is a great base income.

I also have accounts with Toborrow but unfortunately, Toborrow only issues corporate loans while Kreditbörsen caters to private borrowers as well.

I draw from my experience as having operated a private lending business to individuals in Sweden since 2011 when I say that the risks with private debt in Sweden is much lower than corporate debt. The system that Sweden has implemented works and offers great protection for lenders using services like Kreditbörsen to issue loans.

How should capital be allocated? Obviously, this comes down to your goals and your level of commitment. I myself is placing 40 – 50 % of my capital in passive income services that generates between 8 – 15 % per year, this gives me a very strong base.

I am now using this warm summer to prepare for more trading activity during autumn!