The interest rates on deposits are falling and it becomes unprofitable to keep money on deposit, the state provides benefits to investors, but people are still hesitant – and we can guess why. In this article we break stereotypes which prevent people from earning on the stock exchange.
1. It’s safer to keep cash – a time-tested method.
The tried-and-true method doesn’t mean the best. Your money is slowly losing its value: inflation – the depreciation of money – is to blame. We can trace this process through a general increase in prices. For example, last year you bought chicken, vegetables, washing powder and candy for 800 rubles. This year, the same basket costs 840 rubles. Your 800 rubles is less valuable: you can buy fewer goods for that amount.
If money lies idle, it depreciates every year by 4-6% in moderate inflation, and by 10% to 100% in high inflation.
2. I keep money in the bank, and it earns me an income.
Not really. Deposits in most cases only protect against inflation. The average deposit rate at the end of January 2020 fell to 5.76% APR – and that’s a record for the last ten years. Annual inflation in 2019 was at 4%. It turns out that, in reality, your savings on deposit only increased by 2%.
If you put your money in a term deposit, which usually has higher rates, you won’t be able to withdraw the money before the end of the investment period without losing interest. And you can sell liquid stocks and bonds at any convenient time.
The conservative who is used to keeping money on deposit can also find a suitable instrument at the stock exchange. Open an individual investment account (IIA) and buy federal loan bonds (OFZ). That way you can get a yield of up to 20% per annum: by taking a tax deduction (13%) and receiving a coupon payment on the bonds (about 7%). Read more here.
3. It’s better to invest in a car or an apartment than in securities!
Don’t compare because… A car is not an investment: it won’t make you money in the future and you won’t be able to sell it for more in a few years. A car loses 10 to 50% of its value in 3 years. Maybe you will save time, but you will spend money on maintenance and gasoline.
If you’re renting an apartment, it can be called an investment. But the entry threshold here is much higher: real estate is worth millions. At the same time per year you will receive the same income as on the deposit. A studio in Moscow for 5-6 million rubles will pay off 15 years, and the yield will be 4-6% per annum.
4. Only rich people invest.
This is not true. A good start for the first investment is 30-50 thousand rubles. Profit from investments will be perceptible, and mistakes will not seem fatal.
On the Moscow Exchange shares of some companies can be bought literally for pennies. For example, a share of Territorial Generating Company No. 1 (TGKA) costs 0.016 rubles. A share of the FXIT ETF fund, which invests in the U.S. IT sector, will cost you 6,267 rubles – and you’ll immediately allocate your funds to 90 securities.
So, what is actually true:
- If you keep money at home, it will depreciate.
- In most cases the interest rate only covers inflation.
- If you diversify your portfolio, you do not have to fear a default or crisis.
- Buying expensive things cannot be an investment. Investment is the investment of money in order to make a profit.
- If you do not make savings and do not invest, it is unlikely to achieve great financial goals.