Get a better return on your savings by investing your money in index funds.
Your investments are managed by our partner NNEK and this page highlights how the portfolios are set up. Note that these may change by the time you become a customer.
Each investor is unique in their:
- financial goals,
- investment horizon,
- financial situation,
- attitude to risk
There are multiple portfolios set up, each optimised for a particular set of characteristics. During your Curvo onboarding, you are asked a series of questions to get to know you and learn what type of investor you are. Based on your answers, you are matched with the best portfolio.
We recognise that your financial situation and goals (and even your attitude to risk) may change over time. That's why this process is repeated regularly to make sure that your investment strategy always remains aligned to you and your needs.
One of the core principles is to invest only in assets that are widely understood, that have stood the test of time and are predicted to earn significant returns over the decades to come. Concretely, your portfolios solely consist of index funds that invest in stocks and bonds.
Stocks are the main drivers for returns. Throughout the decades, companies all over the world have continued to innovate and thereby yield solid gains to their investors. Global stocks have made an average annual return of 5.2% over the last 120 years, and that's after inflation . There is no sign that this trend will stop: the drive to create and innovate is an innate trait of human beings.
However, there's no free lunch in investing. Higher returns always come with higher risks. In the world of finance, this risk translates to greater fluctuations in the prices of stocks. 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 finance jargon, we say that stocks are highly volatile.
To counter the fluctuations of stocks, bonds are used.
Whereas stocks are very exciting (and scary when they sharply drop), bonds are very boring. They don't fluctuate as much. But that means their returns are lower, at an average 2.0% per year . So one way bonds are used in your portfolio is to tame the volatility of stocks. Portfolios with more bonds relative to stocks will be better suited for investors with a lower appetite for risk.
Beyond their role of stabilising a portfolio, bonds are also great diversifiers. It turns out that oftentimes when stocks are dropping, bonds are rising, and vice versa. So the losses of one type of asset can be partially offset by the gains of the other. In finance speak, we say that there is little correlation between stocks and bonds.
Combining stocks and bonds in a portfolio
The ratio between stocks and bonds in a portfolio is used as a knob to change the degree to which the portfolio fluctuates. When more stocks are added at the expense of bonds, the portfolio becomes riskier. But as a consequence, you get a higher expected return over the long term. Conversely, replacing some stocks with bonds makes your portfolio less volatile, but also lowers its expected return.
Choice of indexes
When choosing the indexes, most importance is attributed to:
- diversification across countries and regions
- diversification across sectors and industries
- weighting by market capitalisation
- exclusion of companies that are destructive to the planet
Two stock indexes were chosen:
- FTSE Developed All Cap Choice index. The index is based on the FTSE Developed All Cap index and includes 4,776 companies across 26 countries that are considered "developed" markets (US, Japan, UK, Canada, Germany…). It excludes companies involved in non-renewable energies, vice products and weapons.
- FTSE Emerging All Cap Choice index. Similarly, this index is based on the FTSE Emerging All Cap index. It consists of 2,728 companies of all sizes from the 24 countries designated as "emerging" markets by FTSE. These countries include China, Taiwan, India and Brazil amongst others. It also excludes companies that are involved in non-renewable energies, vice products and weapons.
The combination of the two indexes represents 7,504 companies that are spread across 40 countries.
The role of the bonds in Curvo's portfolios is to act as a stabiliser through government bonds, and as a diversifier through corporate bonds.
Five bond indexes were selected:
- Bloomberg Barclays EUR Non-Government Float Adjusted Bond index. The index consists of Euro-denominated corporate bonds from companies that meet the United Nations Global Compact (UNGC) principles. Furthermore, it excludes bonds issued by companies that are involved in controversial weapons or tobacco products.
- Bloomberg Barclays MSCI Euro Corporate SRI Sustainable Ex Fossil Fuel Bond 1-3Y index. Also composed of corporate bonds, the bonds in this index have a duration between 1 and 3 years so they're shorter term. Short-term bonds are better suited than longer term bonds during periods of rising interest rates. It also excludes bonds issued by companies active in industries such as controversial weapons or fossiel fuels.
- FTSE EMU Government Bond index. The index is composed of government bonds from 9 selected countries in the European Monetary Union: France, Italy, Germany, Spain, Belgium, the Netherlands, Austria, Ireland and Finland.
- J.P. Morgan ESG EMU Government Bond IG 3-5 Year index. Similar to the FTSE EMU Government Bond index, this index is composed of short term bonds (3 to 5 years duration) issued by ten Eurozone countries: Austria, Belgium, Finland, France, Germany, Ireland,Italy, Netherlands, Portugal and Spain.
- Bloomberg Barclays Euro Government Inflation-Linked Bond index. Inflation-linked government bonds are a special type of bond that protects against rising inflation. In Europe, only 4 European countries issue these bonds: France, Italy, Germany and Spain.
Choice of funds
Once the indexes have been chosen, funds that implement them must be found. Several criteria guide the selection:
- Price. Fund providers charge an annual fee for managing the fund. Naturally, the lower the better!
- Taxes. There are several taxes involved when investing. Funds that lower taxes for you are chosen.
- Distribution of dividends. The portfolios are composed solely of accumulating funds because they're tax-advantageous to the Belgian investor when adopting a buy-and-hold strategy.
- Assets under management. Larger funds are less likely to be shut down.
- Replication. Funds that synthetically replicate their assets expose you to counterparty risk. Therefore, only physically replicated funds were selected.
On this basis, the following funds were picked:
Whatever type of investor you are, there's a portfolio for you.
There are five different portfolios, each matching a different type of investor. They go in order of most risky (but highest expected return) to least risky:
The numbers and statistics behind your portfolios.
When investing, the trade-off between risk and return is inevitable. Each of the portfolios exhibits a different risk behaviour. For instance, Curvo Growth has a higher expected return, but this comes at a higher risk. This is taken into account when matching you with the right portfolio.
As we've seen above, a higher risk translates to greater fluctuations. How can this volatility be analyzed? One way is by looking at the maximum drop in value that a portfolio may suffer in any given year.
By studying the past, we get an idea of a portfolio's future behaviour. In the graph below, we display the maximum annual loss that the portfolios may exhibit. Because the future is uncertain, we have to assume a certain range of confidence. As an example, for most years, Curvo Smooth will never drop more than 6.8%.
If you want to learn more on this analysis, we dig deeper into our calculations on Backtest.
Minimum investment periods
In the previous section, we saw that riskier portfolios may suffer greater losses. Because of this, more volatile portfolios require a longer investment time to increase the odds of a positive return. For each portfolio, we deduced the minimum time that we recommend you stay invested to have a good chance of a positive return by the end:
- Curvo Protective: at least 5 years
- Curvo Calm: at least 5 years
- Curvo Smooth: at least 7 years
- Curvo Energetic: at least 9 years
- Curvo Growth: at least 12 years
Below, we estimated the future performance for each portfolio. These forecasts are calculated using the historical expected return and volatility of each fund in a portfolio. Furthermore:
- The simulations assume a €2,000 investment that is kept for 30 years.
- The simulations take into account the 1% Curvo fee.
- The portfolios are rebalanced whenever one of the assets is out of balance by 5%.
Because of the uncertainty of the future, we mapped out five scenarios for each portfolio: great, good, average, bad and very bad.
In the table below, we compared the annual returns for each portfolio and scenario. The returns take into account the 1% fee.
How the forecasts are calculated
We used Monte-Carlo simulations to generate the forecasts above. With this technique, we generated 600 unique scenarios for each portfolio. This provides us with a statistical basis of the distribution of the possible returns. From this analysis, we extract the five scenarios above: great, good, average, bad and very bad.
The task of managing your investments is done by NNEK and is an ongoing process.
The portfolios are monitored on a weekly basis to see whether they're still in line with the intended asset allocation. It's rebalanced when any of the assets is 5% out of balance.
Monitoring of the funds
The funds in the portfolios are regularly monitored and reviewed. A fund may be replaced with a better or cheaper alternative.
Furthermore, each fund must always meet sustainability criteria. This means that a fund whose sustainability standards are not up to the criteria may be replaced.
In line with your objectives and situation
Every year, it is made sure that your portfolio is still aligned to your needs and financial goals. Through the app, you are also able to notify us if your life situation changes: job promotion, purchase of a house, children, etc... Your portfolio will be adapted accordingly.
As you get older and get closer to reaching your financial goals (for instance, retirement), the risk level of your portfolio needs to be adjusted. This will be a constant process throughout your journey.