Written By: Milja Mieskolainen
For this post, we interviewed Sari Lounasmeri, CEO of the Finnish Foundation for Share Promotion. The text is written based on his answers. Our topics were, in particular, long-term investment and the various themes associated with it. During the text, links have been collected to the materials of the Foundation, which provide more information on the mentioned topics.
“The Finnish Foundation for Share Promotion is an impartial, independent, and non-profit organization established in 1985 with a statutory mission to promote securities saving and the securities market. The Finnish Foundation for Share Promotion owns the Stock Exchange and finances its operations with its rental income. Also, the Finnish Foundation for Share Promotion has an investment portfolio, the income of which is especially used for grants.”
Sari Lounasmeri
President of the Finnish Foundation for Share Promotion and Oy Pörssitalo - Börshuset Ab since 2010
Master of Business Administration
Previously as a researcher in universities and managerial positions in a multinational IT company
Positions of trust e.g. Member of the European Securities and Markets Authority's ESMA Stakeholder Group 2011-2016 and 2019-, Chairman of the Boards of the Finnish Mortgage Association and AsuntoHypoPank
The horizon of a long-term investor is decades away: Quick profits are not sought through rapid market changes, but a long-term investment plan is made that is adhered to. Even a long-term investor is looking for prosperity, but this is being pursued moderately, as historically the market trend has been upward, even though there have been downturns along the way. Risk and return go hand in hand, so thanks to their higher risk, equities have historically been the best-performing investment. In the long run, ups and downs in returns do not hurt the investor. (More information: Dollar-cost averaging).
“Preferably at a young age, for small sums”
The interest rate effect is familiar to many, but its effect can be forgotten. If you need motivation or nerve reassurance because of the crisis in the market, you might want to study the effects of this positive snowball effect on wealth. Looking at the average Finn, at the age of 40-50, the basic structures of life begin to be in order. This raises the idea that saving could be a topical theme. In this situation, the investment and savings amounts should be quite large to get a good return. If, on the other hand, you had already started investing at a much younger age, small sums would have accumulated a good amount by middle age.
Looking at the average Finn, at the age of 40-50, the basic structures of life begin to be in order. This raises the idea that saving could be a topical theme. In this situation, the investment and savings amounts should be quite large to get a good return. If, on the other hand, you had already started investing at a much younger age, small sums would have accumulated a good amount by middle age.
Life must be enjoyed. Despite this, many of our lives have small savings that accumulate in considerable amounts. The amount of wealth that awaits in the future may seem like an abstract goal, but in reality, it is not. If you start with small sums and early enough, you can expect self-created freedom in the future. Wealth brings security both mentally and financially. The buffer at your fingertips is the so-called “In case of a bad day” that ensures that, for example, work does not have to be dictated by others. Freedom doesn't have to mean retirement in your thirties, but the freedom to choose, even in difficult times, brings much-needed mental leeway and flexibility to life today.
Parents or other “adults” may have learned about the high cost of investing. It may have been thought that a really large amount of money is needed before it makes sense to go, for example, to buy stocks, because otherwise, the trading costs will eat up a large part of the money. Nowadays, however, it is possible to invest in small amounts as long as you choose a suitable investment service provider. Starting with small amounts is a really good way to practice investing. When there is room for maneuver, there is no stress in choosing investment targets, as going “nowhere” is not such a big deal.
“Stock savings account – a virtual piggy bank”
A stock savings account can be a big help for novice investors: For the first time, an instrument is available that can hold both cash and stocks. For example, even if the dividend amounts are small at first, the money arrives inside the account and can be reinvested to enhance the interest rate effect), but they remain in the account more easily and will not be taken away on a whim. A stock savings account can be called a virtual piggy bank, as the money automatically stays in the account and is not accidentally spilled for use. There is no extra administrative bureaucracy involved in the account, and it allows you to get started with small sums.
“Narrow your sources, and approach investing gradually”
There is as much information and opinions on the internet as you can research. A novice investor may be confused if he wants to find out the basics. A good starting point for finding and utilizing investment information is to choose a few easy-to-read sources for yourself. The amount of information is a problem, so the idea quickly arises that investing in an investment requires a lot of work before you can make a return. In reality, this is not the case, as you can go a long way by using a few hours a month, which means that an analysis of day periods is not necessary. Of course, if enthusiasm is found and investing is like a hobby, one can immerse oneself deeper into sources of information.
The easiest way is to select specific channels and decide which one to follow first. The criteria can be applied to the teachings of media literacy: Who speaks? Who produced the content? What motivation is behind it? The financial press talks about certain things and Facebook groups like that differently. Even when using information sources, it is worth “decentralizing”, ie interpreting slightly different perspectives on the same issues. Good analysis is done in the investment blogs, basic data can be found on the NASDAQ website, the companies' pages provide justifications to accompany the data, and independent parties, such as the Finnish Foundation for Share Promotion, guide the basics. Information related to the funds can be found, for example, in Investment Research or on Morningstar's website. If you want to study the responsibility of funds, you can look for different assessments and comparisons.
For a stock savings account, exclusive sources of information from your service provider can be helpful. It’s a good idea to first form an idea of what you’re going to compare, after which it’s easier to start analyzing a smaller set. It is worth building the portfolio little by little: First, you can start to diversify by sectors, and then think about what is missing from the portfolio. Indeed, step-by-step construction and delineation are less intimidating, as “chopping the elephant” makes the approach easier.
“Make geographical diversification easy for yourself”
Many wonder whether adequate geographical diversification requires investment in foreign listed companies. Geographical diversification makes sense, but according to the traditional company’s home country, there are other options. For geographical diversification, one can also calculate the country of location of the company's customers; Many companies on the Helsinki Stock Exchange are global companies with operations in several different countries. Finland is a relatively safe country with little political risk, which may be a good idea to invest in Finnish companies. It is worth looking at the companies' area of operation in addition to just the domicile. The Finnish focus of the portfolio is not necessarily a bad thing: Access to information is easier in Finland, and the investment environment is safe. As with other areas of investment, it is worth making geographical diversification easy. For some people, America may seem familiar, but investing there is a sense of decentralization is not necessary. In long-term investments, companies are evaluated globally. If we focus on Finland, for example, small companies will emerge more easily if compared to a global analysis
“Remember your goals”
The coronavirus, which has shaken the market, may have aroused an investor's instinct for self-defense. The stock markets came rumbling down, and the calm is far from thoughtful. If you want to succeed in long-term investment, you need to be prepared for stock market invoices, as they are part of the package. If you want to stick to your plan, you should be aware of your time horizon. Is it intended to be invested for one or two years or even decades? This can have a surprisingly large effect on your behavior.
Creating an investment plan may sound like a kilometer-long report, but it doesn’t have to be complicated. The average Finn examines his portfolio in more detail about once a month or twice a year, according to a survey by the Finnish Foundation for Share Promotion. If several changes are not part of your plan, it is easier to avoid the temptation to go and adjust stock options, for example. Besides, the downturn market is a pretty bad time to leave the market. If able to start the so-called. “In bad times,” it pays off. Pre-conceived limits, for example on purchase and sale prices, help to clarify one's activities. In the longer term, the crisis caused by the coronavirus is not unique.
You can sacrifice far too much focus on timing. All people are bad at predicting. He often sees an “all or nothing” mentality that quickly turns out to be a dramatic style. If you have created a systematic plan for yourself, you can focus on self-development, for example, by reading. When making long-term investments, it is not worth thinking too much about timing: according to a study conducted at Aalto University, on average, eight years after the investment, half of the shares had been sold, ie long-term equity investment is common.
“What thing will affect the future?”
Instead of crises, it is worth focusing on the factors that shape the future. Megatrends are a good tool for the long-term investor, as their effects will not be visible for years to come. In terms of digitalization, it is worth looking at how the company can serve its customers remotely. In the US, Amazon and several other companies have managed to adapt, meaning that the market created by digitalization has grown faster than others. Responsibility and especially climate change highlights those companies that succeed and operate smartly in their business. Studies have found more commitment from customers and stakeholders to companies that make their operations more responsible. In the Finnish market, Neste has succeeded in this category with the help of renewable fuels. During the coronavirus, urbanization has emerged as some people have been “forced” to stay put. On a global scale and in the long term, urbanization continues as a megatrend: Buildings are being made higher on average, ie elevators are needed, for example, as family sizes decrease, urban services are focused on the needs of one or two people and recycling is developed with responsibility.
If you can find a single fixed point in the future, no matter how small, and find a company that is firmly involved in it, you might want to consider joining. Aging is involved in the cities of the future and society as a whole. It emphasizes the development of health services, the transformation of banking services, and also the adaptation of other companies. If responding to the coronavirus and other crises is a “wonderful hobby,” there is nothing wrong with that. If it causes more gray hair than joy, there is no need to become a “day trainer” in one fell swoop. Making arbitrary changes to a long-term plan rarely produces the best outcome. Investing doesn’t have to be a complete number game: Megatrends are easy to touch and can be analyzed through their strengths. Many young people think that investing is just a rotation of numbers, ie analyzing financial statements. Today, however, there are masses of ready-made analyzes and comparisons, so you don’t have to bother with calculations on your own.
“Approach through your interests, and gather information from data points to support your decisions
”
You can choose one approach to investing, for example, numerical or megatrends, after which you start to delineate the companies that you think are suitable for you to dive into. A people-centered approach can also work. Has the CEO been successful in the past? Company Board: Often, the same people are on multiple boards, so you can choose those companies that have the same board member. On the other hand, the owners also play a big role. Who do you want to be in the same boat with? It is important to find your area of strength. In the first wave, you can look at it on a large scale, after which you start to think about the meaning of numbers. If you start investing purely based on other opinions, the losses will surely be annoying. When you have your own money in the game, you have done your kind of analysis and believe in the future success of the company, so mistakes made by intuition may be easier to accept as a learning experience. On the other hand, when the investments go well, it’s great to realize that you’ve utilized your expertise.
“If everyone owned a little”
A lot of corporate finance is being considered this spring. The social significance of investors is most evident for a long time. Owners are needed, because the more broad-based a group is owning, the better. If everyone owns little, the value of owners increases in companies in a responsible sense. So you don’t have to make investing difficult, with your interest and simple strategy you can make an impact on things that are important to you.
More information on topics:
Finnish Foundation for Share Promotion guides: Among other things, the stock and fund guide and the investment guide for the curious
Finnish Foundation for Share Promotion Investment School: “From the lessons of the Investment School, you will learn, among other things, how to start investing, how to choose investment targets, what the different concepts mean, how you can invest responsibly and how to buy the first shares. In addition to clear texts, the lessons include concise videos, illustrative images, and concrete examples.”