Who are Elphinstone? 

Elphinstone, Inc., a Registered Investment Advisor that is registered with the United States Securities and Exchanges Commission. It owns a wholly owned subsidiary Elphinstone Pakistan Ltd (“Elphinstone Pakistan”), a Securities Advisor licensed by the Securities and Exchanges Commission of Pakistan. We aim to offer services primarily to customers in Pakistan who wish to invest in the Pakistani capital markets as well as US capital markets. Elphinstone offers automated investment advisory services through its websites – elphinstone.us, elphinstone.com.pk, and smartrupee.pk – as well as apps on both Android and iOS smartphones.  

So what is an investment account?  

An investment account is a type of financial account that is used to invest money in various financial assets such as stocks, bonds, mutual funds, exchange-traded funds (ETFs), and other securities. These accounts can be opened with a financial institution such as a bank, brokerage firm, or online investment platform. 

There are several types of investment accounts, each with their own unique features and benefits. Two you may be already familiar with are:  

• Individual brokerage account: This type of account is opened by an individual and is used to buy and sell securities in the stock market, mutual funds, and other investments. 
• Retirement accounts: These types of accounts, such as 401(k)s in the United States and a VPS account in Pakistan, are designed to help individuals save for retirement. They often offer tax advantages and other incentives to encourage savings. 

If you sign up through Elphinstone US, you will be opening an individual brokerage account in your name that allows you to invest in stocks, bonds and ETFs in the United States. This is possible because Elphinstone US has partnered with Alpaca,  

What’s the difference between an advised portfolio vs self-directed portfolio? 

Our product allows individuals to operate their account in two ways: advised portfolios as well as self-directed investments.  

The main difference between an advised portfolio and a self-directed portfolio is the level of involvement and guidance provided by a financial advisor – in this case, Elphinstone.  

An advised portfolio is one where a financial advisor provides guidance and makes investment decisions on behalf of the client. For advised portfolios, the customer is asked to provide demographic and financial information that is used to determine an optimal portfolio based on the user’s investment objectives.   

On the other hand, a self-directed portfolio is one where the individual takes full responsibility for making investment decisions. The individual will typically conduct their own research and make investment decisions based on their own analysis and understanding of the market and individual securities.  

Both types of portfolios have their own advantages. An advised portfolio can provide a level of expertise and guidance that may be beneficial for those who lack the time, knowledge, or experience to manage their own portfolio. Self-directed portfolios can be a good option for individuals who are comfortable taking on more responsibility and have the time and expertise to manage their own investments. Elphinstone US allows individuals clients to take either approach.  

What does the advised portfolio entail? 

For the advised portfolios, the company asks its users to specify their preference for conventional or Islamic modes of investing, with the latter. 

Each client is presented with a sliding scale that represents the trade-off between risks and returns, and clients are advised that the longer the duration for which they are saving, the more capacity they have to take on risk, and the shorter the duration for which they are saving, the less capacity they have to take on risk. The portfolios consist of two components: a fixed income component and an equity component.  

For conventional portfolios, the equity portfolio consists of five low-cost equity index ETFs and the fixed income portfolio consists of five low-cost ETFs that track either short-dated US Treasuries or floating rate US Treasury securities. The more a customer wants to reduce their risk, the greater their exposure will be to US Treasuries, and the more they want to increase returns, the more their exposure will be increased towards equity indices.  

For Islamic portfolios, the equity portfolio consists of all components of the S&P 500 index that comply with Shariah-compliance principals, as defined by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), weighted by market capitalization. The fixed income component consists of a fixed income ETF that invests in global sukuks (Islamic bonds). Once again, the more a customer wants to reduce their risk, the greater their exposure will be to the sukuk ETF, and the more they want to increase returns, the more their exposure will be increased towards equities. 

Does Elphinstone offer Shariah-compliant investing? 

Yes, Elphinstone US offers Islamic investing. For our advised Islamic portfolios, the equity portfolio consists of all components of the S&P 500 index that comply with Shariah-compliance principals, as defined by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), weighted by market capitalization. The fixed income component consists of a fixed income ETF that invests in global sukuks (Islamic bonds).  

An individual client may also choose to invest in any other stocks and bonds stocks in line with Shariah-compliance principals, as they see fit.  

What are Elphinstone’s fees? 

Investment advisory services for clients who wish to invest in US securities are currently subject to a fee of 1% of assets under management, calculated on a prorated basis per calendar day.  

For instance, in a non-leap year, the fees a client would pay would be calculated as follows: 𝐷𝑎𝑦 𝑒𝑛𝑑 𝑎𝑐𝑐𝑜𝑢𝑛𝑡 𝑏𝑎𝑙𝑎𝑛𝑐𝑒 ∗ 1 365 ∗ 1% Elphinstone, Inc. 

During a leap year, the following formula would apply. 𝐷𝑎𝑦 𝑒𝑛𝑑 𝑎𝑐𝑐𝑜𝑢𝑛𝑡 𝑏𝑎𝑙𝑎𝑛𝑐𝑒 ∗ 1 366 ∗ 1% The fees are all-inclusive and would cover any brokerage fees, SEC, and FINRA fees associated with trades placed in the client account. 

What is the minimum amount I need to sign up? 

All customers are welcome at Elphinstone, although our preferred minimum account opening deposit is $100 for our US investment accounts. 

Why should I invest in US stocks? 

There’s a few specific reasons why the United States is the world leader when it comes to capital market growth:  

• Market size and liquidity: The US stock market is the largest and most liquid in the world, with a wide range of publicly traded companies across various sectors. This provides investors with a diverse range of investment options and the ability to easily buy and sell shares. 
• Strong corporate governance: US companies are generally subject to strong corporate governance laws and regulations, which can provide investors with added protection and transparency. 
• Economic stability: The US economy is one of the most stable and developed in the world, and this can provide investors with a level of stability and predictability. 
• Strong legal system: The US has a well-developed legal system that can provide investors with protection in case of fraud or other legal disputes. 

• Diversification: Investing in US stocks can provide diversification benefits, as it can help to spread risk across different sectors, geographies, and currencies. 

Are US treasuries a better idea than a term deposit at a Pakistani bank? 

US Treasury bonds, also known as Treasuries, are debt securities issued by the US government to finance its spending. There are two aspects to keep in mind:  

• Creditworthiness: US Treasuries are considered to be among the safest investments because they are backed by the full faith and credit of the US government, which is considered to be one of the most creditworthy borrowers in the world. 

• Low Default Risk: The US government has a history of repaying its debt on time and in full. This is a major reason why US Treasuries are considered to be a low-risk investment. 
• Liquidity: US Treasuries are highly liquid and can be easily bought and sold in the secondary market. 
• Diversification: US Treasuries are widely recognized and held by investors around the world, which makes them an ideal instrument for diversifying an investment portfolio. 

On the other hand, a term deposit at a Pakistani bank is a type of time deposit where the money is deposited for a fixed period of time and earns a fixed interest rate.  

• The interest rate on term deposits in Pakistan is generally lower than the US Treasury bonds because of the higher risk. 

• Creditworthiness: Pakistani banks are considered to be less creditworthy than the US government, which means that there is a greater risk of default. 
• Liquidity: Term deposits at Pakistani banks are less liquid than US Treasuries 

What is the difference between short term, medium term, and long term investing? 

Short-term investing, medium-term investing, and long-term investing refer to different time horizons for holding onto investments. 

Short-term investing typically refers to holding onto investments for a period of days or weeks with the goal of making quick profits from market fluctuations. This type of investing is often associated with active trading and is considered to be higher risk. 

Medium-term investing refers to holding onto investments for a period of several months to a couple of years. This type of investing is considered to be less risky than short-term investing but still requires a more active management of the portfolio than long-term investing. 

Long-term investing refers to holding onto investments for several years or more, with the expectation that the value of the investment will increase over time. This type of investing is considered to be less risky as the investor has more time for the investment to recover from market fluctuations and for the underlying company to perform well. Additionally, long-term investors may also benefit from compound interest, where the returns on an investment are reinvested to generate additional returns. 

What are equities and bonds? 

Equities and bonds are two different types of investments that have distinct characteristics and risks. 

Equities, also known as stocks or shares, represent ownership in a publicly traded company. When you buy a stock, you own a small piece of the company, and your returns are tied to the performance of the company. If the company performs well and becomes more valuable, the value of your stock will increase, and you may be able to sell it for a profit. However, if the company performs poorly, the value of your stock may decrease. Equities are considered to be riskier investments than bonds, but they also offer the potential for higher returns over the long term. 

Bonds, on the other hand, are debt securities issued by companies, municipalities, or governments. When you buy a bond, you are essentially lending money to the issuer in exchange for periodic interest payments and the return of the face value of the bond at maturity. Bond prices fluctuate based on the creditworthiness and financial condition of the issuer, as well as general interest rate conditions. Generally, bonds are considered to be less risky investments than equities, but they also offer lower returns. 

What is the compounding advantage of investing in equites? 

The compounding advantage of investing in equities, also known as stocks or shares, refers to the effect of reinvesting the returns on an investment over time. When an investor holds onto equities for an extended period, the returns on the initial investment, such as dividends and capital gains, can be reinvested to generate additional returns. As the returns are reinvested, they begin to earn returns of their own, creating a “snowball” effect that can lead to significant growth in the value of the investment over time. 

For example, if an investor invests $10,000 in a stock that returns 10% per year, the investment will be worth $11,000 after one year. If the investor reinvests the $1,000 return, the investment will be worth $12,100 the next year. The process of reinvesting the returns continues to compound the investment, leading to substantial growth over time. 

Additionally, in the case of equities, the compounding effect is also known as the power of compounding, it is one of the most powerful drivers of returns in the long run. This is due to the fact that equities have historically returned an average of around 10% per year, which outpaces inflation and provides a positive real rate of return over the long term.