The Spesía way of investing
Spesía invests in Icelandic government bonds and in the global equities of thousands of companies around the world to achieve broad diversification.
Spesía is built on a few core investment principles: Diversification, low costs, and choosing an asset mix based on investment horizon and risk tolerance.
We are not reinventing the wheel. Spesía's approach is based on decades of investment research and data on how markets and investors have actually behaved – not on feelings, predictions or luck. Below, we walk through these principles and the reasoning behind them.
When it comes to long-term investing, stocks have a strong historical track record, which is why long-term investors such as pension funds allocate most to this asset class. Economists Elroy Dimson, Paul Marsh and Mike Staunton have studied the long-term returns of stocks, bonds and Treasury bills in 35 countries (Treasury bills are comparable to the savings accounts that pay the best interest rates). In the UBS Global Investment Returns Yearbook 2025, their data covers 125 years, from 1900 to 2024, for 23 of these markets. In every one of them, stocks delivered much higher returns than bonds and Treasury bills over the period.
The difference was substantial. From 1900 to 2024, the average annual real return on global stocks was 5.2%, compared with 1.7% for bonds and 0.5% for Treasury bills. And only the best savings accounts pay interest close to Treasury bill rates. The average return across all savings accounts is generally even lower.
This long history shows that investing in stocks is not a fad, nor does it rest on luck. On the contrary, stocks are precisely the asset class that history shows has delivered the best long-term returns.
Cumulative Real Returns by Asset Class in the US, 1900–2024
This history is not, however, one of uninterrupted growth. After the 1929 crash, it took the US stock market around fifteen years to regain its previous value after adjusting for inflation. A long investment horizon and patience therefore matter.
Stock investments can fluctuate significantly in the short term. A longer investment horizon gives more room to ride out volatility, and returns are never guaranteed.
For investors who lose sleep over short-term swings and declines, it may make sense to reduce volatility and risk in the portfolio by lowering the share of stocks and increasing the share of assets that fluctuate less, such as bonds.
Savings accounts are, however, well suited for an accessible emergency fund, when an investor cannot tolerate any risk of loss, or when saving for less than one to two years.
Combining different investments is probably the only free lunch in investing. This applies both to combining stocks of different companies and regions, and to combining different types of investments, such as stocks and bonds.
This approach – building portfolios on a broad mix of different asset classes that offset one another – is the generally accepted method in finance for constructing portfolios. Harry Markowitz was the first to describe it formally when he introduced Modern Portfolio Theory in 1952, for which he received the Nobel Prize in Economics in 1990.
Research by Dimson, Marsh and Staunton also shows the importance of diversification. Their analysis of the interplay between stocks and bonds over the period 1900–2024 shows how a mix of these asset classes can reduce volatility. In a separate comparison covering 1974–2024, global diversification of equity investments also delivered better risk-adjusted returns than investing only in the home market in the vast majority of the 32 countries studied.
Stock and bond returns do not move perfectly in step, so these asset classes often tend to offset each other's swings rather than amplify them. Combining them can therefore reduce portfolio volatility, although it may also mean lower expected returns. Many investors prefer that balance, choosing steadier and slightly lower returns over more volatile and slightly higher ones.
When choosing the ratio of stocks to bonds for each individual investor, what matters is when the money will be needed and how much risk the investor is able and willing to take.
Investment returns are uncertain, but costs are deducted no matter what happens. We therefore know that lower costs, all else being equal, translate into better returns for the investor.
It can be tempting to pay more to have someone pick the best investments. For that to pay off, the benefit of their work must exceed the additional cost. That is hard to achieve consistently, and strong performance in recent years does not, on its own, indicate whether it will succeed in the future.
Two percentage points a year can make a huge difference. Consider a simple example: one million krónur growing at 6% a year after costs becomes about 5.7 million over 30 years. If higher costs reduce the return to 4%, the final amount is about 3.2 million. Higher costs and the returns lost to them have then eaten up more than half of the gains.
That is why Spesía focuses on keeping costs down and assessing what they buy. The goal is for as much of the return as possible to stay with the investor. Higher costs need to deliver benefits that outweigh them.
This is a key question: Can't we beat the market by having someone pick the “best” stocks for us? Or even by doing it ourselves?
Picking the best stocks sounds appealing. But beating the market after costs, in a predictable way, is very difficult, as decades of research have shown. And yesterday's top performers are not necessarily tomorrow's winners.
Strong performance can stem from knowledge and skill, but also from favorable market conditions or luck. It is not easy to tell the difference, or to find the very few funds whose performance may be based on skill. Choosing the fund that performed best in recent years has not proven to be a good recipe for success in the years ahead.
That is why we do not build Spesía's portfolios around finding the next winner. We spread our investments across thousands of companies through low-cost index funds. This lets us share in the value they create without having to predict which individual companies will outperform.
Active management, where fund managers try to pick winners, needs a clear rationale for how it can create value beyond its costs – and in the vast majority of cases, it does not succeed.
Spesía invests only in global stocks, not Icelandic ones. There are three reasons for this:
First, most Icelanders already depend on the Icelandic economy doing well – through their jobs, their homes and their pension savings.
Adding even more Iceland-related risk by investing in Icelandic stocks does not diversify this risk; it concentrates it even further in Iceland.
Second, foreign investments can reduce how dependent a portfolio is on the Icelandic economy. Exchange rate movements can, however, both increase and decrease the value of foreign assets measured in krónur.
When assets are spread across the whole world, we are better protected and less dependent on a single country or industry than if we had everything in Iceland.
Third, the Icelandic stock market is homogeneous and tiny in a global context, with few companies and few industries.
On the other hand, Spesía invests only in Icelandic bonds, such as government bonds.
For an investor with income and expenses in krónur, this has the advantage that movements in foreign exchange rates do not directly affect the bond portion when it is held in krónur. The market price of the bonds can still fall, for example when interest rates rise.
It is easy to get the feeling that now is an unusually bad time to invest. The Covid pandemic, trade wars, the war in Ukraine, the 2008 financial crisis – there is always something that seems to threaten financial markets.
But history shows that, despite all these shocks, global stock markets as a whole have continued to rise over the long term. Past returns do not, however, guarantee similar returns in the future, and declines can last a long time.
Some people wait years to invest because the “right time” never comes. This is one of the main arguments for investing regularly – for example monthly – rather than trying to pick the “right” moment.
With regular purchases, the investment is automatically spread across the market's highs and lows.
Spesía is guided by these principles: We invest in low-cost index funds with broad, global diversification, and combine foreign stocks and Icelandic government bonds in proportions that reflect each person's time horizon and risk tolerance. No bets on individual companies, no attempts to predict the market from day to day – just discipline, diversification and low costs.
That said, we know that investing is not only about scientific methods, formulas and calculations. The biggest barrier for many savers to take the step and invest in securities is often emotional – the feeling that it is too complicated, too risky, too much like gambling, or that you need to be an expert to get started.
