Arefievs Emphasizes the Long-Term Benefits of Investing in Stock Market Index Funds and Second Level Pensions in Latvia

While these rates of return are truly impressive, few would have predicted them. Arefiev emphasizes that there is no guarantee that they will happen again in the future.

“The financial market can be compared to the weather – very variable and difficult to predict. You should always be ready for unexpected changes. However, just as we expect that summers will be warmer than winters in the long term, shares are usually more profitable than bonds in the long term in the financial markets,” says Arefiev .

He suggests that one of the surest ways to reap the benefits of investing in the stock markets is to invest regularly using global stock index funds, rather than buying individual company shares at a seemingly “lucky” moment. Index funds not only provide the widest possible investment portfolio, but also automatically balance these investments according to stock price changes.

The second level of pensions is for almost everyone working in Latvia, 6% of the gross salary is allocated to it. Arefjevs points out that it is real money that can be effectively invested in the financial markets and earn an adequate return, and it is the first and most important investment that everyone should think about, but about half a million people in Latvia have always chosen unjustified conservative pension plans.

As the average age of a member of the second tier of pensions is 43 years and there are still 22 years until the age of 65, a plan with investments in shares up to 100% would be a suitable choice. In other words, these are plans that could earn up to 15% in 2023.

The performance of the most conservative plans fluctuated between 5% and 10% during this period. Arefiev predicts that this is a trend that will most likely continue next year and beyond. The second level pension plan should primarily be chosen according to one’s age. Adaptive or life-cycle pension plans make this task much easier – they can be chosen once and not changed until retirement.

Arefievs adds that, in the long term, a regularity usually works – company shares, even though their prices may fluctuate, are potentially the most profitable type of investment.

2023-12-26 08:20:00
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