It has long been known that there is no point to invest all the funds in one asset; you need to diversify your risk, i.e. invest in different financial instruments in certain proportions. So, if some assets become cheaper, others would level out this risk. Therefore, analysts, including the head of the National Bank of the Republic of Kazakhstan, recommend us to keep funds in different assets, balancing the risks.
Diversification is also important when investing in familiar tools for us such as: deposits, real estate, or business. However, when choosing one of these tools for investments, it is worthwhile to understand what risks each of them holds.
Deposits become less attractive
Lately, more and more news began to appear about the problems in some financial institutions. For example, some banks get suspended or their license is revoked, others impose restrictions on cash withdrawal. And this situation makes you wonder whether it is worth to keep your funds on deposits.
Let us analyze understand how attractive the deposits are at the moment. Unquestionably, deposits are one of the most sought-after financial instruments. It is possible to receive a stable income on them, besides one thousand tenge is enough to open a deposit. However, despite all the advantages of deposits, they have become less profitable lately. The profitability of both tenge and dollar deposits is rapidly falling. According to the National Bank, starting this year, on average, the rates on retail term tenge deposits contracted from 11.9% to 11.6%. The deposit guarantee rate is also sloping every year. As of 2017, the rate on foreign currency deposits has decreased from 2% to 1%, in tenge from 14% to 12%. By the way, the yield on deposits in the market is usually below guaranteed. For example, the market rates for foreign currency deposits are 0.5-0.7%, for the euro - zero.
Simultaneously, the deposits are still a very convenient tool. The yield on them at least partially covers inflation.
Real estate: consider all the risks
Thinking about where to invest, it may often seem that investments in real estate are risk-free. A house or an apartment can be rented out, left for children or resold, having earned a considerable amount. But, on the other hand, real estate investments are that alternative that requires certain knowledge, costs and experience. To make money on the house or apartment resale, you need to constantly monitor the market. And even in this case, you can lose. Let me remind you about the year of 2008, when real estate prices fell down in value almost twice. Besides, real estate prices in case of decrease or increase of exchange rate of USD in KZT equivalent do not change, it means, they do not protect against dollar exchange rate fluctuations.
When buying an apartment other risks arise immediately. For example, the risks of an earthquake, flood, or fire. And if you take into account that real estate is maintained with years, then every year its value automatically goes down.
Therefore, by investing in a real estate, you need to predict the demand for it, assess all the risks and understand what you expect from the investments in general.
Business risks need to be thought through
No need to say, that the most interesting investment for many people is their own business. Having in-demand products and competently calculated risks, the business usually develops brings an impressive income. But meanwhile business activities are constantly influenced by many risks, some of which are often difficult to predict. For example, it is very difficult to predict political or legislative risks. With their implementation, some companies or even the industry may find themselves under severe pressure or even threat.
However, over time, beside the usual financial tools, new ones begin to appear, which Kazakhstani people either did not know about or heard of them, but did not know how they worked.
Often you can both earn a lot and lose a lot on such instruments. Here are some of them: stocks, bonds, crypto currency.
Depending on the risk an investor is ready to take, investments in such instruments are usually distributed in certain proportions. But, in order to at least repay your investments and, if you are lucky, earn, you need to monitor the market, the situation in the industry. It should also be borne in mind that when investing in stocks or bonds, the risks related to the company that issued shares or bonds may appear, in particular, risks on reputation, bankruptcy or legislation change. Also, if you have decided to take a risk and buy, for example, stocks, you need to choose the right time for this. Many analysts are inclined to believe that now the stock market is overheated, thus, the prices for these securities are overstated. And, given this point, stock prices may collapse any minute. As a result, the investor who has invested in these securities may be left with nothing.
Of course, you can opt for the management company services to form a portfolio. But you need to realize that it also cannot guarantee revenue, the yield of securities will depend on the market. Although even in this case it will be necessary to pay quite high commissions for escorting the transaction. By the way, sometimes even professional brokers with a huge staff of analysts cannot predict the behavior of many markets.
More than investment
Recently a currency instrument combining guaranteed income and protection has appeared on the insurance market, a life insurance policy developed by the life insurance company NOMAD LIFE. "Nomad Gold" policy guarantees profitability a few times higher than that offered by banks. The yield on this product reaches 3.26%. This rate is six times higher than the one offered by banks on USD deposits.
The rate of return under the policy is guaranteed and fixed for the entire insurance term. Despite high market volatility, the yield on the policy remains unchanged. Market risks are being leveled, which, by the way, have an impact on deposits.
The income under the policy is not taxed. One needs $1 thousand to open the program. The more investment, the higher the final income will be.
The policy is effective from 3 to 10 years. The annual effective rate depends on the period: the longer the period, the higher the yield. Upon the contract conclusion for 3 years the annual rate is 2.3%, for 10 years - 3.26%. When placing $30 thousand for 5 years, the investment income on insurance will be $4,435, for 10 years - $11,283.
Guarantees are unquestionable
When placing large amounts in an insurance company, investors have a concern about their money safety. However, these are the unfounded fears.
First of all, life insurance companies are stable institutions in the world practice. They are not engaged in issuing loans, thus, they do not subject customers to high credit risk.
Secondly, the insurer makes investments in highly reliable assets. Thanks to that, a stable interest income is obtained. In addition, the National Bank monitors and controls the life insurance companies’ activities through prudential standards. Highly liquid assets must be at least 110% of the insurer liabilities. So, if early withdrawal is required, the insurer will meet all his obligations.
Thirdly, it is important that LIC NOMAD LIFE is included in the Nomad insurance group and is not affiliated with the financial-industrial group. Besides, a reinsurer is the largest European company with a rating of "AA-".
Also, funds placed by the client in the “Nomad Gold” cannot be included in the list of recovered property, they cannot be declared or divided between the spouses during the divorce.
Thus, we advise you to distribute your investments in different proportions, depending on the risk level you are ready to go with. There are many instruments for investing: "Nomad Gold", deposits, real estate, shares, etc.
Photos per website: oregional.net