The crisis made it increasingly appreciate the security of investments. However Gone are the days when enough to put money on deposit to enjoy the attractive interest rates. Seeking profit is worth considering the other option, for example. Investment in mutual funds.
Experts answer five key questions related to this form of investment capital.
Historically low interest rates’re told to forget deposits with attractive interest rates. An alternative may be investment funds. Viewing five basic questions to demonstrate that it is an investment not only for risk, and the danger of loss can be reduced by avoiding the basic error that committed many investors before the start of the financial crisis.
Security or profit?
Crash of 2008. was a breakthrough. Fundamentally changed the attitude of Poles towards investment. From now on, security has become particularly important for us. The collapse of the financial markets brought home to investors the high returns associated with the risk of loss. The Poles have moved a significant part of the invested funds with more volatile products such as equity funds, to secure bank deposits, which at that time offered very attractive interest rate.
However, since 2008., Main NBP interest rate fell from 6 to 2 per cent., and with it has been a significant fall in interest rates on bank deposits.
– On the one hand, Poles now attach great importance to the safety of savings, with the second period of record high interest rates on deposits have become accustomed to profits limits of 10 percent. per annum, – says Monika Szlosek, Director of Retail and Investment Products Deutsche Bank. – In the current market situation realization of such objectives requires consideration of the investment portfolio more volatile assets. And indeed, we can see that although still in Poland, most of the savings held in cash and bank deposits, the investment fund market is growing steadily – he added.
Interestingly, the Poles appetite for profit is higher than two years ago. – “Attractive rates of interest” is a subjective concept. When we talk about it, you have to remember that it is a gain in relation to the rate of return on risk-free – says Grzegorz Pietrucha with Skarbiec TFI. – If we assume that safe return rate currently stands at about 2.08 per cent. year, as much as WIBOR6M, and expectations are at 6 percent. annually, it turns out that they were relatively higher than two years ago, when customers were counting on 10 percent. profit in comparison with the rate of safe at 4.4 percent. – He explains.
It can be concluded that the risk appetite of Poles is growing with interest rate cuts. – To meet customer expectations today, in their portfolios must appear riskier assets, which translates into higher volatility – emphasizes Grzegorz Pietrucha.
appeared on the market so offer connecting safe bank deposits to investment funds for much higher potential rate of return. – This solution provides a simple way to diversify savings, is also an impetus to actively invest resources in the long term – says the expert Deutsche Bank.
How to identify your risk tolerance?
In the financial market there is a simple rule: possible to achieve a profit is directly proportional to the risk. – To achieve a higher rate of return, you must choose a fund riskier, usually with a higher share of equities in the portfolio – says Tomasz Kacprzak, an expert PZU investments. – Being aware of this relationship, each client must answer the question of what or loss is able to accept. This will limit the choice of funds that will be in the circle of his interests – he explains.
When determining your risk tolerance should specify the purpose for which saving and investment horizon and hence the period for which we want to “freeze “money. – If we invest to three years to replace the roof, because begins to leak, we should not risk it – notes Gregory Pietrucha. – If, however, we are thinking about investing in the longer term, the portfolio may appear more volatile assets – he added.
How to maximize profit and minimize potential risk of loss?
– There is no universal answer to this question. It all depends on their existing assets, expectations and investment horizon. It is always worth to remember about diversification, ie. To the planned investment on the part of the share invested in different asset classes: cash, stocks, commodities, currencies – says Tomasz Kacprzak of TFI PZU. – Another simple and effective way to minimize risks is to acquire selected assets “in installments”. Let us not invest a single total capital, or rather in stages, for example. Every week or every month – he added. Using this method averages the value of the initial investment, as well as reduce the risk of starting investments in an unfavorable time, eg. On top of trading.
– One of the common rule is that safety should be a part of this part of the portfolio, how old you are , 30-year-old should have 30 percent. safe assets, for example. bonds, and the rest may invest in riskier assets, for example. equity funds – explains Grzegorz Pietrucha from TFI Skarbiec. But keep in mind that part of the portfolio of these assets more variables is also diverse. Emerging market equities will be characterized by greater volatility and thus higher expected rate of return than equities from developed markets.
The behavior of common sense in the distribution of equity part to regions or sectors will help to minimize potential risks. The portfolio should be diversified assets, because in such a situation, even if some of them lose value, probably different make up for that loss.
– The portfolio should consist of funds investing in different markets, both in terms of geography, and sectoral – says Grzegorz Pietrucha. Expert Skarbiec TFI recommends that you choose uncorrelated funds, that is, the results of which are as far as possible little dependent on each other. This allows you to protect yourself against the least desirable scenario, when we lose on many investments at once.
Most of savers do not want to worry about their money and look after them every day. Therefore, a well-constructed investment portfolio is one that does not require frequent changes. This does not mean that we should forget about it and do not control it at all. One of the primary advantages of funds is their liquidity. While investment capital can move freely from one group, which in hindsight seems less promising, until which the potential was growing. Therefore, people who have invested a large part of savings in mutual funds, they should be interested in the current situation on the markets.
– We can maximize profits by observing the phase of the economic cycle that dominated these asset classes within each phase could potentially generate greater returns – explains Grzegorz Pietrucha. – For example, in the phase of economic recovery gradually increasing exposure to stocks, and in the flowering stage to build exposure to raw materials – he explains.
What kind of funds relate recently the best results?
This is the question that bothers many novice investors. Do not be. As experts emphasize, the historical performance of funds in no way indicative of future performance, and can therefore suggest that the papers, which have grown in value last year eg. 20 or 30 per cent., In the next repeat this result. – Safety is very important for investors, but largely guided by the funds they achieved rates of return and on this basis, make investment decisions – notes Thomas Kacprzak of TFI PZU.
The magic of past performance to send other more important information. – First of all, it should concern us that funds may have the best results for the year, two or five years. By purchasing units of investing in the future, and not in the story – says Grzegorz Pietrucha. – A common mistake made by investors basing it solely on historical results. Meanwhile, investment planning should dig deeper and verify whether the potential for growth has not been exhausted, what were the foundations of such good results, whether the market has the strength to continue to grow if growth were not merely speculative – he added. If you do not have time to deal with these issues, Chose a balanced fund or stable growth. We also entrust to construct a portfolio of professionals – expert advises Skarbiec TFI.
This does not mean that the historical performance of the fund are irrelevant. – They should, however compare with other similar profile. If from funds investing in shares of the Warsaw Stock Exchange one had to be shown better results than the others, we can assume that proved decisive in this case the efficiency of management – says Monika Szlosek, an expert Deutsche Bank. – In this case, there may be already some indications to trust them in the future – he added.
What does the future of individual fund groups?
– The prospect of further economic recovery indicates that in coming years it is equities should enable the greatest earnings – says Grzegorz Pietrucha. He argues that past gains in markets are not detached from the foundations, and companies are doing very well and profits that generate reflected in the prices of their shares. – The world is not a monolith, so in different regions, the situation may be different – says Grzegorz Pietrucha. – The prices of all shares of the companies do not go up, even in a great economic environment, which is why it is so important to have in the portfolio benchmark not only funds, but also those whose investment policy is based on selection – he added.
With this opinion agrees Monika Szlosek with Deutsche Bank: – Polish economy, like the world, is on the verge of a strong recovery. Historically low interest rates will sooner or later result in increases in the financial markets. The problem is that we do not know when it will occur, and concerns about geopolitics, eg. The crisis in Ukraine, can lead to strong fluctuations in world markets. In this situation, the diversification of savings between various types of deposits and investment funds is a good strategy. Especially since on the market there are now many promotional offers that provide such an opportunity – says the expert Deutsche Bank.
This press release, Deutsche Bank, abo
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