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.

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,
Stefan