For financial well-being, a person needs sources of passive income, which are formed as a result of investing free funds. Earlier we wrote about 5 ways to invest: bank deposit, mutual funds, stocks, gold and real estate. In this article, we will consider three more options: bonds, individual trust management and currency.
1. Bonds
A bond is a debt security. The owner of which has the right to receive, on the maturity date, its face value (payment of the amount of income) from the issuer (the company that issued the bond) or coupon income (periodic payments during the ownership of the paper).
There are two types of bonds:
• Coupon bonds – coupon payments are periodically paid on them, and at the end the face value is returned. Coupon income is defined as a percentage of face value. Denomination – the difference between the sale price and the purchase price. This value can be either positive or negative, depending on market conditions, inflation and the economic interest rate..
• Discount bonds – the coupon is not paid on them, and only face value is returned.
Bonds are issued by large companies or the state to attract borrowed funds. When buying bonds, the investor, in essence, lends to the state or company. The more reliable the issuer, the lower interest rate it can attract borrowed funds.
Vyacheslav Alekseytsev, Head of the Investor Relations Department at Gruzovichkof, says: “Bonds are a close alternative to bank deposits in the stock market. These are securities (debt obligations of companies or the state), the principle of which is similar to a bank deposit. Bonds are bought by individuals – for the sake of preserving and increasing personal capital, and legal, seeking to preserve the financial assets of the company ”.
When buying, pay attention to the “yield to maturity” indicator, it consists of the coupon rate of the bond and the difference between the purchase price and the face value of the bond. For zero-coupon bonds, only the difference between the purchase price and the face value is taken into account.
Tatyana Vladimirovna Polteva, Senior Lecturer, Entrepreneurship Department, Togliatti State University, reports: “How reliable is it to invest in bonds? The issuer acts as a borrower, so it must be responsible for its obligations, investment risks are minimal. The most reliable borrower is the state, the least – low-rated companies. But remember that risk-free assets exist in theory, so risk is always present. ”.
Pros:
• Great, conservative portfolio diversification tool.
• Good opportunity to save capital.
• Low risk.
Minuses:
• Low profitability.
• It will not work for a short time.
Alexei Polyakov, director of the Polyakov Finance investment fund, says: “Bonds are considered a low-risk instrument. Unlike stocks, they are an obligation to you. It is an obligation that will always be fulfilled. ”.
2. Individual trust management
An alternative to mutual investment funds is individual trust management (IMU). The difference is that the management company manages the funds of the depositor personally, working out strategies, taking into account the interests of the person. For its services, the company usually charges a percentage of the amount transferred to management and a percentage of the income received.
Aleksey Novikov, head of marketing at Otkrytie Asset Management, said: “At the moment, the minimum amounts in standardized IMUs start at 500 thousand rubles, on average, you can invest in some companies starting from 100 thousand rubles”.
The advantage of this investment option is a personal approach and the ability not to delve into the intricacies of financial markets, trusting professionals.
Pros:
• Personal approach to investor.
• Opportunity to invest without special knowledge of financial markets.
Minuses:
• High entry threshold.
• Lack of ability to influence the result.
Dmitry Henkin, director of Consulco Group, says: “Trust management means access to professional investment management with a range of benefits. For example, in case of investing in commercial real estate, the trust management format provides diversification, access to particularly interesting transactions, banking leverage and, most importantly, the trust manager’s experience and experience. A professional team with solid work skills and historical performance indicators is more likely to achieve impressive returns. ”.
3. Currency
Buy currency is considered a classic way of diversification. But storing money in one currency is a risk. If you keep savings only in rubles, and it falls against the dollar and the euro, then the purchasing power of money is reduced. Therefore, experts recommend dividing the funds into three baskets. Ruble, dollar and euro. It is impossible for all three currencies to file simultaneously. When the ruble grows, the dollar and the euro fall and vice versa. In the proportions of the distribution of money there are no strict rules. One approach is 40% dollar, 40% euro and 20% ruble.
Investing in foreign currency helps to insure money from economic risks, especially if you are going to go abroad or make a major purchase like a car. Remember that if you keep money only in currency, you lose on inflation.
Pros:
• Suitable for diversification and capital protection.
• Average risk level.
Minuses:
• Volatility. But it is also a plus.
• Fail to outrun inflation.
Alexey Novikov, Head of Marketing, Otkritie Management Company, summarizes: “Investments, like any potentially profitable enterprise, have their own risks. To minimize their likelihood, we recommend diversifying the portfolio, i.e. do not place all funds in one instrument, but distribute them depending on the chosen investment strategy in assets of various categories.
Thus, in the event of an unfavorable situation in one of the market sectors, capital will not be lost. Over the past 10 years, investors whose portfolio consisted of only stocks received less profit than if they included bonds, metals and other alternative assets. Diversification gives a chance to get a positive result in one market, while the other shows negative returns, and also helps protect capital from sharp market fluctuations and at the same time helps achieve long-term goals ”.
Similar articles
- Where to invest money – 5 ways to invest your capital
An investment is an investment of one’s own funds in one or several promising projects in order to extract additional passive income and…
- How can you lose money in the stock market
How can you lose money in the stock market When an investor does not know what he is doing, the stock market becomes a dangerous place for him. Here are a few…
- Where does Buffett invest? – America’s richest investor
This will, of course, be about Warren Buffett – perhaps the greatest investor of his or any other generation. He is known for buying stocks and…
Which investment option is the most suitable for individuals seeking to invest their savings? Is it stocks, real estate, or maybe a different approach altogether?
Can you suggest some reliable investment options for someone looking to invest their savings? I’d like to explore different avenues and would appreciate any insights or recommendations you may have. Whether it’s stocks, real estate, or a different approach altogether, I’m open to learning about various ways to make my money work for me. Thank you in advance!