People at This Age Often Say to Themselves:
The risk is too high. I will lose my savings.
We often choose the security of a bank deposit where the amount is guaranteed. However, we don’t take into account a very important factor, i.e. inflation. When inflation is high, it has an impact on the time value of our money and reduces their purchasing power. When a deposit interest rate is lower than inflation rate, this results in loss of profit.
Another popular form of investment of saved funds is the purchase of immovable property. However, the following information is required to manage such an investment:
- How much the value of the property will increase with time?
- What will the monthly rent be and whether it is possible to receive it at all times?
- The amount of maintenance and refurbishment costs, taxes, fees, etc?
In case of real estate market instability we can find ourselves in a situation in which we have an investment with considerably lower value that cannot be sold.
Remember that in order to reduce risk you should distribute your savings in different assets. If you consider yourself a conservative person regarding risk, why would you put all your eggs in one basket?
The period is too long, and my savings should be available when I need them.
It is a common misconception that the funds invested in financial instruments cannot be used for long periods of time. In reality, the liquidity rate of such investments is much higher in comparison to some traditional savings means.
Do you know that savings are placed in a short-term bank deposit for 7 years on average. At the same time this is the recommended time limit for investments in financial instruments.
The funds will be used for future purchases/ to cover liabilities.
Come to think about it. We take out a bank loan to meet current needs - buy a car, a residential property, refurbishment, travel, etc. Saving is a type of deferred consumption, funds put aside for emergency situations or in order to maintain the same living standard over the years.
Imagine a situation in which you urgently need funds, and due to your financial situation you are not eligible for a bank loan. You don’t have any savings either, because you used them to repay current liabilities instead of investing them to increase their value.
What You Must Do?
Do not put all your eggs in one basket
Distribute your savings in such a way which can ensure their security and the increase of their value in the future. Get information about other ways of investing your savings apart from a bank deposit.
- Control your emotions when you put a portion of your savings into investment products.
Your investment is expected to increase in the long run. However, temporary capital market downturns can cause concern. If markets perform in the way they have had for long periods of time, you may rest assured that things will go back to normal. Do not forget:
- The losses are reported only on paper until you decide to sell your investments when their value has suffered a temporary drop. And yet, if you are still tempted to sell them, remember that your original idea was to make long-term investments.
- If you invest when there is a slump in markets, no matter how ludicrous this may seem, you will buy at an extremely low cost. When markets start to show signs of recovery, you will have a fairer chance to generate profits.
- Trust professionals
You don’t have to demonstrate profound knowledge in finance to be able to put your savings into investment products. You just have to trust experts who have the necessary knowledge and experience in this field. Your personal advisor at UniCredit Bulbank can give you more information about suitable products which will help you achieve your financial targets.