We are living in difficult times, which are marked by an unfavourable economic situation. However, on the other hand, as a result of the pandemic, there are also opportunities on the investment market that are worth considering.
Investing, or …
Before describing the different forms of investment, it is necessary to mention a few useful rules for safe and effective investing. First, a good rule of thumb is to allocate regular amounts to investments each month, which in the long run have a positive effect in the form of significant capital that can be invested. After just a dozen or so months, the funds may turn out to be large enough to be properly invested and multiplied.
Another useful rule in obtaining an adequate return on investment is to limit the participation of intermediaries. If the investor chooses the right financial instruments on his own, he can reduce costs and thus increase his profits.
It is also worth avoiding investments that will be difficult to withdraw. One of the most important things in investing is an exit plan. If you do not know how and when you can recover the money paid in (with a profit or a loss), you should not engage funds in such an investment. For example, you should not borrow money at interest if you do not know when it will be returned, and you should not buy rare works of art, bottles of wine or collectibles if trading them is not easy and smooth.
Dynamic bank deposits
Of course, the simplest form of investment is to put money aside for a term deposit. This is a very good way to accumulate cash for larger investments. Depositing regular amounts into a specially created sub-account will require consistency, but as a result, a larger amount set aside will allow you to invest it properly and obtain an appropriate rate of return (because at the current interest rates on bank deposits, you should not expect too much profit).
Bank deposits are also one of the most convenient ways to invest, as it requires almost no knowledge. Deposits can be easily compared with each other, and the deposit itself is simple. It is also known in advance when its term ends, so we can invest any, even temporary, financial surplus in this way.
If you decide to invest in this safest form of investment, it is also worth analyzing it in terms of conditions, optimal period and preferential interest rate. Every month, it is also worth checking whether it is profitable to change the deposit or bank in order to maximize profits. It is also worth noting that transferring the deposit to a new bank will often mean a higher interest rate for the so-called new funds.
Investing in bonds
The second, widely known way of investing is bonds. It is worth taking an interest primarily in state bonds. They are a relatively safe form of capital investment and protect investors against inflation. You can also buy them every month for small sums of money and regularly increase their portfolio.
Treasury bonds can be purchased in PKO BP bank branches, online and by phone. After a certain period of time (e.g. 3 months) from the date of purchase, the amount equal to the value of the bond plus interest due is credited to the investor’s account. The nominal value of Treasury bonds is PLN 100 or a multiple of this amount. The State Treasury also offers six-year and twelve-year Family Bonds with a more attractive first annual interest period compared to other bonds. It should be remembered, however, that only beneficiaries of the “Family 500 plus” program can be purchasers.
If an investor is willing to accept a slightly higher risk in exchange for a higher rate of return, it may be worth considering investing in corporate bonds. The largest companies issue bonds quite often, and the yield on them is higher than that of state bonds. The disadvantage of this form of investment is that it is slightly more difficult to exit the investment than in the case of treasury bonds.
Even if you want to invest in financial instruments with a higher rate of return, it is worth keeping a certain percentage of your investment in bonds for safety. Especially if the time horizon of the investment is long-term.
Own company
Another way that requires more financial outlays is to open your own business or buy shares in an already operating capital company. In this situation, the profits are spread over several years, and the initial amount to be invested is usually over PLN 100,000. With this form of investment, it is also worth remembering about the choice of a developing industry and about low competition in the products or services offered, which are in the company’s assortment.
In the case of investments in operating enterprises, it is necessary to carefully analyze the financial results, growth potential and it is worth buying a majority stake, because then we have a real impact on the management of the company and the payment of potential dividends to the owners.
In addition, the so-called costs of entering a given industry (e.g. licenses or other barriers) should also be carefully analyzed, and in the current times, the effects of the pandemic on the industry that arouses our interest should also be taken into account.
This form of investment is aimed at creative and consistent people, and with the right effort and good organization, it can mean significant financial success that will multiply the initial capital.
Stock exchange
Another type of investment is investing in the stock market. The principle of operation is based on simple schemes: buy cheaper, sell more expensive. Investing in the stock market does not involve any secret knowledge available only to brokers. If the investor is systematic and stubborn in pursuing his goal, and at the same time chooses cold calculation instead of excitement, he may turn out to be a good “player”.
Before opening a brokerage account and investing funds, it is worth familiarizing yourself with terms such as business cycles, bull market, bear market, rules for buying and selling shares and other issues described in books and materials for investors.
The stock exchange can mean profits for investors at the level of up to several dozen percent per year, but the risk with this form of investment is relatively high.
Investment funds
A good way to invest relatively safely is to buy investment fund units. Many banks allow you to buy them online – just log in to your personal account, then submit an appropriate instruction. In such a case, the investor can also show that he regularly puts aside surpluses and buys new units every month. In addition to the security of the investment and the possibility of investing even small amounts, another positive feature of this financial instrument is also the relatively easy exit from the investment.
In addition, a big advantage of the funds is their diversity and diversified portfolio. An investor does not have to know about shares, know how to buy raw materials or foreign bonds. He simply chooses the right fund and can already have a package of securities from any region of the world and any type. They can also choose funds representing investment strategies appropriate to their level of risk acceptance (bond, hybrid or equity).
Of course, investing by funds in various types of assets is burdened with a similar risk as investing in these assets yourself. However, funds protect investors by averaging risk – by investing indirectly in dozens of different securities, rather than a few.
The key issue to pay attention to when investing in funds is fees. The rule is simple, the more fees, the worse. Here, the principle that funds with a higher management fee are better than those with a lower one does not work, because in this case the profits often disappear due to too high costs.