Quite a few people had to use the saved “white money for rainy days” because of the economic impact of the coronavirus.
Even before the crisis with Covid-19, interest rates on deposits reached almost zero levels and according to most experts this will not change soon. Nevertheless, it is noteworthy that deposits in the banking system as a whole are increasing.
Analysts warn that wealthier people accumulate additional deposits, but smaller depositors decrease in number.
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Deposit in a bank – many are convinced that since this is an “investment”, it certainly brings a return. Due to the record low interest rates maintained by central banks, this is currently not the case.
Not only does this storage carry no value on top, but by paying a fee for this storage, we are actually at a loss, said in an interview with BNR the certified financial consultant Sesgin Shefketov.
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A Look at BNB Statistics for January – interest rates on household deposits in BGN were 0.12 per cent in January compared to 0.14 per cent a year earlier. Just for comparison – for the new business the interest rate is already negative. If we compare the bank offers, we will notice something curious – the largest banks offer zero or close to zero interest rates, and the smaller ones – even over half a percent interest rate.
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“This means that the bank needs to raise funds from its depositors in order to be able to untie its “purse” for loans more easily“, Explains Shefketov.
If so far the general conclusion is that a bank deposit is not the best option for saving at the moment, what to do with your money?
„An old, worn out, but quite sensible wisdom is not to put all the eggs in one basket“, Says Svetla Nestorova, who runs a life insurance company in one of the largest insurance companies. According to her, part of the income should be directed to places with good liquidity, and part of the funds should be “locked” for a longer period of time, because “the point of saving is not to have access to all your money all the time“.
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There are two or two products in Bulgaria that combine Life insurance with a savings or investment component.
In the first case, a person sets aside funds every month or every year for a long period of time and at the same time buys insurance coverage.
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„You both save for 20 years and you are insured from the first moment. ”The logic of this type of product is that if the worst happens to us, all the money we would ideally save for the entire insurance period is guaranteed to be paid to the family or to ourselves in case of complete disability, he points out. Nestorova.
„With these products, the entire amount you negotiate with the insurer is guaranteed if you execute your part of the transaction., you pay your contributions. No matter what happens in the financial markets, your guaranteed sum insured will be there in the end. “
In investment insurance you bear the investment risk yourself, the result is not guaranteed by the insurer, clarifies Svetla Nestorova. However, this group of products is diverse – you can make very bold and more conservative decisions, the expert added. “In the more conservative ones, the product is very similar to savings insurance and does not carry much investment risk.”
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And since this is a riskier product, we must add that it is far more liquid. In other words, one can withdraw part of one’s money or make larger contributions. When we go to a company to sign a contract for one of the two options, they can offer us a survey to determine our risk profile and direct us to the most reasonable alternatives, Nestorova is adamant.
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Life insurance brings tax relief, which is also not negligible.
Before choosing a financial product, we should answer some questions:
„What period of time do we have, what do we want to use these funds for, what is our risk tolerance if we want to invest these funds“, Explains Sesgin Shefketov. According to him, the combination of life insurance and an investment or savings component is a reasonable investment for some of our money.
And what about the third pillar of the pension system?
This instrument does not have as much flexibility, it is constructed in a framework and is the same for every pension fund user., says Shefketov.
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The principle is such, but the third pillar has its advantages according to Svetla Nestorova, who defines it as “one of the most elegant forms of investment“.
Long-term savings are undoubtedly a necessary element of our own portfolio – this is a thesis that is defended by absolutely all experts.
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However, what do we need to know about mutual funds and ETFs – “exchange traded fund”, in translation – exchange traded fund? An ETF is a basket of securities that you can buy and sell on the relevant stock exchanges through a broker..
How Stanislav Atanasov, who heads the Investment Products – Sales Directorate in one of the leading banks in Bulgaria, describes the mutual funds:
“This is a product for collective investment and cash management in the financial markets. Investors or clients provide their funds, which they have an interest to invest, for management in this mutual fund, thus buying or acquiring a share in the fund. in proportion to the amount invested by them on the basis of the price determined for the day of purchase. “
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Here, too, decisions are made by professionals who, together with the client, determine the degree of risk. If we have to withdraw our money from this investment due to unforeseen circumstances, we can do it – we will receive it within a few days, assures Atanasov.
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The more risk is taken with the investment, the higher the expectations for profitability, he concludes. “It simply came to our notice then profitability and risk are like connected vessels and they always go together. “
These products are a good alternative for longer-term consumer savings, notes Stanislav Atanasov. In the case of mutual funds, it is recommended that investments be longer-term in order to achieve the real goal, the analyst is categorical.
Everyone is convinced of one thing – the best option is to look for a combination of products in which we have security, measured risk according to our account and liquidity.
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Both Svetla Nestorova and Svetoslav Atanasov clearly describe that there is no way to say about investments – I invest x money and expect x + y at the end of the period. There is simply no such possibility, so the financial consultant Sesgin Shefketov recommends:
„If the users of such tools hear – you will enter with so much and for so long you will come out with so much money on top, it is better to get up and leave.“
If, after all that has been said so far, there is no alternative that we like, in the short term with 3-4 or 5 thousand levs a person is better to try their abilities, Sesgin Shefketov gives another direction: to invest in ourselves through courses and trainings or to open online business.
There are many more opportunities in the world of investments, and the ones presented here are for information only.
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