Investing is a troublesome business. Especially if you play on the stock exchange in order to obtain quick and large income. Most Russian citizens who survived the 1990s are not ready to risk hard-earned money. However, nothing prevents them from being interested in high interest rates with full protection of capital.
Deposits are gradually losing their relevance, the key interest rate is falling. Behind it become lower interest on deposits. Customers of banks that used this product wish to expand their knowledge and create capital with maximum profitability. What are the means of increasing investment? What is a long term investment? Is it a reliable way to increase passive income? We will deal with this issue in detail.
How to invest profitably?
The main rule for a successful investment is diversification of investments. A competent investor does not use the only way to generate income. The investment portfolio consists of various financial instruments. These are long-term products, first of all, and short-term, risky instruments. What percentage will be all possible and desirable financial instruments for the investor in his portfolio - the owner of the capital decides. For himself, he highlights real opportunities and focuses on personal preferences. It is recommended to leave part of the money for long-term investments. This part of the capital is usually much larger than all other shares of the investment portfolio. In this way, the depositor keeps the bulk of the amount safe and has a stable high income. What securities are included in long-term investments?
Stocks
The first thing an unprepared person thinks about is that stocks are complex and taking into account long-term investments requires special skills. In fact, any citizen with an average mind is able (with due attention and perseverance) to deal with this financial instrument. For a simple understanding, long-term investments in stocks of companies look like this: every large company needs money for its development. Not every organization can do it by its own means. We have to use the money of investors. Investors contribute to the development of the company a certain amount, counting on making a profit based on the results of the company. Under an investment agreement, they are entitled to a portion of the money earned by the company. What is the share profit generated from:
- Dividends. Paid from the net profit of the company, which is calculated once a year by the owners. The calculation is based on the amount invested. As a rule, after the payment of dividends, the investor again puts them into circulation. This process is called reinvestment.
- Exchange difference. It is characterized by constant control over the price of shares. The bottom line is that stocks are bought at one price and sold at another. At this price difference, the investor’s profit is obtained. Such actions on the exchange require considerable experience and understanding of the state of the market.
Types of shares:
- Shares value. These are stocks that, for some external reason, have fallen in price. Perhaps an industry crisis has occurred or the time of year has changed. The influence of these factors will weaken or completely disappear after a while, the value of the shares will increase. On the difference in price, the investor will make a profit. The question is, after how long will the stock become liquid again? It can last for decades.
- Stocks growth. Sold by companies that are developing in huge strides. Interest on such shares is growing very quickly. Dividends are rarely paid, usually these securities are reinvested and await further growth.
- Dividend shares. Long rise in price. Their profitability is determined by the profit of the company to which the shares belong. These are large, constantly generating firms.
Each investor, according to the chosen strategy, selects shares for himself. They should be consistent with the objectives of the investment and be based on the timing of the projected income. Shares have different values, so there is no reference to the amount of capital. It is recommended that a novice investor train on stocks of so-called blue chips. These are those companies that have been generating stable income for decades (Coca-Cola, Procter and Gembel, Nestle, etc.). The shares of these firms are high in price, but the yield is stable.
Bonds
The essence of this type of long-term investment is as follows: the investor gives money to the company in debt, which undertakes to return it after a period specified by the agreement with interest on its own profit. The interest on bonds can be paid periodically. The rate on bonds is consistently higher than on deposits. Bonds, depending on the issuer, are divided into:
- Government (Federal Loan Bonds). They are considered the most reliable. Profit bring stable, but low, along with bank deposits. There is a guarantee of return on invested funds.
- Regional, municipal. A variety of government, profitability depends on the development of the region.
- Corporate Securities. They are produced by companies that seek to attract funds from private investors. Usually these are large, reliable companies, but there are exceptions. You should carefully consider the choice, based on the experience of investing (possibly someone else's).
- Folk. This is a specific program of large banks (Sberbank, VTB). Bonds are issued at a rate of 8.5% and are not subject to income tax.
The funds that investors receive in the form of bond income are called coupon payments. The timing of the placement of finance ranges from one year to long-term, more than five years. Compared to stocks, buying bonds is a less risky undertaking. Bonds usually have collateral. In case of bankruptcy of the debtor company, the shareholders will not receive anything, and the owners of the bonds have the right of priority payment.
Mutual Investment Funds (UIF)
If a novice investor is uncomfortable with the idea of analyzing companies and buying securities on their own, then the mutual fund will be an excellent alternative. For a small commission, your financial affairs will be handled by proven professionals, professionals accounting for long-term investments. A share in itself is also a security. Fund employees have in-depth knowledge of financial strategies and experience in investment activities. Giving money under the management of professionals, the investor does not lose anything, except for a small commission, which they charge for the work.
When choosing a mutual fund, be guided by the strategy according to which work is going on inside it. Each unit investment fund has its own investment strategy. A diversified investment portfolio is considered competent, where securities of various kinds are distributed in a fractional ratio. Ideally, when mutual funds in the aggregate affect all highly profitable activities of companies. Before acquiring shares, pay attention to the dynamics of profitability of the fund’s strategy. Do not fall for loud advertising about the real profitability of mutual funds, watch the real profit. Recommendations:
- Keep money in a mutual fund for at least three years. Over this period, the strategy will show its real profitability, and the illiquid one will gain positive dynamics.
- For those who hold shares for a long time, tax incentives and special conditions from funds are provided. This will save money when withdrawing from an investment strategy.
- Explore special offers from foundations. Often, the benefit for unit owners is under certain conditions (buying for a fixed amount, paying online, etc.).
The property
It is considered one of the most reliable investments in long-term investments. If there is a large amount, the investor buys a house under construction or finished. Since 2019, the sale of real estate “from the pit” has been prohibited at the legislative level in connection with frequent cases of fraud by interest holders. Analysts predict an increase in apartment prices. However, housing will remain a valuable resource. The options for using this type of investment are endless:
- An apartment bought at a reasonable price at the construction stage is being sold more expensive. Often, the amount of the difference in price is close to half of the original cost. An income of 40-50% is an excellent result of investment.
- The apartment is rented for a long time, earning a monthly profit. Its size depends on the area of delivery. In Moscow and other large cities, the price of rented housing corresponds to the average monthly income of a resident of a metropolis. This method is a great opportunity to provide yourself with a constant passive income, spending money only on redecorating if necessary.
- Daily rent brings profitability more than long-term. But the risks of the owner in this case are higher and it takes a lot of time to take delivery / display / cleaning.
- Buying property abroad has recently become more popular. Use such housing more often for rental and passive income.
- The cost of square meters in Russia is only increasing from year to year. Therefore, even after living in your own apartment for several years, there is a chance to sell it for more than it was bought.
Deposits
The classic way to generate income. It becomes long-term when the depositor constantly updates the term for the placement of capital upon reaching the end of the deposit agreement. Given the fall in the key rate, in the future it is expected to reduce interest rates on deposits. This trend has been supported for several years. Therefore, the return on this investment method is low (an average of 6-7% today). But the method remains one of the most popular, especially among older people. This is a long-term investment, the main advantage of which is one hundred percent preservation of capital and the return specified in the contract. The Deposit Insurance Agency insures the amount of 1,400,000 rubles per depositor in one financial institution. Thus, the interests of capital owners in the event of bankruptcy are protected at the state level.
Precious metals
The equivalent of deposits. The profitability of precious metals is small, but stable. The investor is offered three methods of acquiring metals: coins, bullion and anonymized metal accounts. The latter are the most popular way. The client does not see physically precious metals, but buys them at the rate. In the future there is an increase in price. It is on this exchange rate difference that the investor’s capital is formed.
Currency
These long-term investments are relevant for those who are not sure of the stability of the ruble and are ready to constantly monitor the rates. The investor receives income due to the difference in the rate at the time of purchase and at the time of sale. Some capital owners prefer to keep money in foreign currency in case of default. The rates on deposits in foreign currency leave much to be desired, therefore the profit in this case is doubtful and does not lend itself to forecasting.
Where to get the money?
The size of the initial capital with a burning desire to make long-term investments does not matter when it comes to securities. The constancy and stability of income from long-term investments encourage investors to use various sources of financing:
- An elementary source is own funds. Their roots can grow from anywhere. Money can be earned, inherited, used as a source of long-term financing of investments after the sale of expensive property.
- Borrowed funds. It is important to understand that the percentage for the use of credit funds should not exceed the potential and actual return on long-term investments. Otherwise, the investor will remain in the red and the investment goal will not be achieved.
- Government subsidies. Investing takes place with federal support. The state helps start-up businessmen and finances investments. For example, support for agriculture in Russia is at the federal level.
- Third party funds. Those that managed to attract from private hands. Mutual investment funds and projects that require investments and attract investors for mutual cooperation work according to this scheme.
How to invest?
Long-term investment projects require a carefully verified action plan and the stability of its implementation:
- At the first stage, it is necessary to determine the sources of long-term investments. Choose the most interesting investment option for you, get acquainted with the potential return, visually calculate the likely profit and correlate with the intended purpose of generating income. If the result meets expectations, take action.
- Gather the most useful and correct information about your future source of income. Find reviews, articles, and analyst predictions. Analysis of long-term investments and experience of previous years will provide the necessary information about the liquidity of the selected project.
- It will be useful to use the services of a financial consultant to analyze the investment portfolio. Professional calculation of potential profit will clearly demonstrate future income.
- Buy what you have chosen. Or invest where you decided. Do not take time, otherwise the calculations may not be correct or the value of the assets will change. In this case, the whole process will have to be started anew, otherwise the scheme will turn out to be erroneous.
- Constantly monitor your investment. Market testing is carried out in the long term, minor fluctuations do not affect the final indicators. Put and Forget is not about an investment project.
- Control profitability. Periodically audit and bookkeeping long-term investments. So the probability of failure will be minimal.
The risks
Despite the fact that investments in long-term investments are the most profitable, risks in their use are still present:
- In the case of the acquisition of shares in an unreliable enterprise with its subsequent bankruptcy, there is a risk of non-return of funds. Choosing the company in which the investment is planned is required with great care.
- Debt obligations of the company whose shares were acquired. The risk is that your investment contribution will go towards paying these debts in case of bankruptcy of the creditor organization.
- Long-term investment risks not related to the financial activities of the invested company. For example, the tense political situation, the coup, social instability and criticism of the company in the press. All these factors negatively affect the value of the assets of the company.
Finally
Before deciding on a long-term investment in securities, select a reliable broker. It will be he who will become the intermediary through whom you will conduct operations in the stock market. The broker's main task is to promptly and completely enable the investor to withdraw funds from circulation.
According to the results of 2018, the TOP-11 brokers included: VTB, FG BCS, Sberbank, FINAM, GK Otkrytie, LLC ATON, ALOR BROKER, KIT Finance, Bank GPB, Promsvyazbank, JSC IC I T Invest "."
A long-term investment project should be approached responsibly and not let things go by their own accord. If necessary, especially at first, do not hesitate to use the services of a financial consultant. A competent approach will protect your capital from possible losses.