Deposits and real estate are traditionally the most preferred forms of investment for households in our country. Today, however, real estate prices are record high, and interest rates on deposits are quite often below 1%.
Against the background of record inflation in the country for more than 24 years, today it is especially important to invest our savings so that they do not lose their purchasing power. For many investors, sums of the order of BGN 1,000 or 2,000 are not large. However, the average Bulgarian can hardly afford larger funds for investments.
What is more important than the initial amount is the monthly installments that we will make thereafter. Regardless of whether they are from 100 or 200 leva, equal to a little over 50 and 100 euros, we must be serious and consistent in our intentions – to invest part of our savings and income.
We will illustrate the above with an example. If we invest BGN 1,000 for the next 10 years and our expected average annual yield is 8%, this will mean that at the end of the period we will have BGN 2,158. However, if we add an additional BGN 100 each month, the amount will grow to BGN 19,542.
So – what options are there before us if we are talking about investments with an initial 1000 or 2000 BGN, as well as installments of 100 or 200 BGN each month?
Mutual funds
According to the latest data of the central bank, investments in funds amount to BGN 8.1 billion. BGN 5.5 billion were invested in foreign funds, and BGN 2.6 billion in Bulgarian funds. Mutual funds are collective investment schemes that invest the collected funds in various assets – shares, bonds, government securities, etc. They are regulated by the Financial Supervision Commission, and our money is managed by specialists – portfolio managers. A reference to the results of the native funds can be found on the website of the Bulgarian Association of Management Companies (BAUD), as well as on their websites. In mutual funds, we can invest regularly, but in small amounts or in large lump sums. It will be good to know what are the purchase, sales and annual management fees of the fund in which you will invest.
Exchange Traded Funds (ETFs)
Gaining popularity, ETFs track the performance of an index or commodity. This is one of the easiest ways to invest money in an economy or commodity, most often oil or gold. The industry is increasingly entering our country as well, with several management companies offering clients investments in EU countries or gold. The precious metal is often considered one of the best ways to protect our money from inflation.
Dividend shares
Some publicly traded companies distribute dividends. This is a percentage of the company’s realized profit in the last year or quarter. In the West and in the US, companies distribute dividends every quarter, while in our country, by law, this is possible on an annual basis or every six months.
The acquisition of shares from dividend-paying companies can provide us with both profit from the increase in their price (note ed. capital gain) and passive income from dividends, with which we can realize a certain dividend yield.
Crowdfunding
Crowdfunding platforms allow investors to invest even small amounts, most often 100 euros, in real estate projects. They are a group form of investment, or in other words, the funds needed for the construction of a given real estate project are raised by hundreds or even thousands of investors. Their profitability varies from 6-8% per year in the West to 10-15% in the Baltic States. A mortgage is established on the project, with which investors’ peace of mind is guaranteed.
Cryptocurrencies
This is also the riskiest investment of the above. In other words, we can gain the most from it, but big losses are not excluded. The most popular cryptocurrencies – Bitcoin, Ether, etc. lost more than 60% of their value in 2022, but have seen growth since early 2023.
Risk
Personal finance experts recommend that we only invest funds that we will not need in the coming years. Diversification is also a good option – in other words, not to put all the money in one place. That way, if one of our investments underperforms, the other can compensate. And last but not least – it would be good to make decisions about your personal finances with specialists.
*This material is for informational purposes only and no part of it can be construed as an offer or solicitation of a transaction for the sale or purchase of financial instruments and/or professional advice related to an investment decision. Investors should note that past performance is no guarantee of future performance, and the value of investments may go down or up, resulting in significant losses. Investments in exchange-traded and contractual funds are not guaranteed by a government guarantee fund or by any other type of guarantee.
