Grecinieku 6, Riga, LV- 1050, Latvia
Phone: + 371 6 7000 444
E-mail: info@bib.eu
Grecinieku 6, Riga, LV- 1050, Latvia
Phone: + 371 6 7000 444
E-mail: info@bib.eu
Even enormous capitals can depreciate if not taken care of. Inflation represents one of the major threats to your wealth. Inflation is a deadly killer that erodes the value of your savings. Keep in mind that it’s not always wise to save money just for the sake of saving money. Put your money to work to build long-term wealth.
A traditional cash deposit still remains the most popular choice for prudent investors as an easy, convenient and clear way of earning money. You deposit your money with a bank to earn a stable income over time, albeit quite decent and often incapable of offsetting an inflation-caused depreciation effect on your money.
To earn tangible profit, you can also move your money into more aggressive investment vehicles. Most investors erroneously think that a more-aggressive option involves greater loss. Risk-averse investors prefer to stay away from smart investment choice, thus missing the chance to yield returns.
The truth is as old as the hills. The most reasonable approach to managing temporarily idle funds is to build a diversified investment portfolio, along with holding deposit accounts.
A variety of options includes stocks, bonds, gold, currency, real estate, investment funds... Every investment carries its own risk, and the level of risk correlates with the expected return (risk/return trade-off). Through the selection of diversified investments, you minimise risk. A diversified portfolio will enable you to still gain return. You should always maintain a balanced allocation between your stock and bond positions. As your stocks dive, you can take a gain on your bond position. At the same time, you can benefit from soaring stock markets where the expected returns can far exceed the amount of interest earned on deposits.
Baltic International Bank will build for you a customised portfolio comprising the financial instruments that best fit your investment goals: traditional cash deposits, purchase of gold, securities, mutual fund units (shares), equity investments, forex deals, and others.
The optimal mix for your investment portfolio is determined depending on your investment objectives, i.e. whether to preserve the capital, protect it from inflation, or to significantly grow your capital. Factors such as your desired yield goal, investment horizon, and risk tolerance are taken into account. The general concept is as follows: higher expected returns require taking higher risks. Therefore, investors must thoroughly evaluate their tolerance and comfort zone for risk.
For rookie investors, our investment experts recommend to invest primarily in stocks and bonds. Stock/bond percentage within the individual portfolio depends on factors such as investor’s age, investment objectives, investment horizon, and risk tolerance.
Sometimes, seasoned investors recommend to follow an old rule of thumb: your bond position (as a percentage of all assets) should roughly equal your age (“hold your age in bonds”), with the rest in stock holdings. The strategy is based on the assumption that younger investors more often prefer long-term investments – they are long-term investors. Older investors prefer to spend their money gained from investments.
According to John Bogle, a legendary investor and the founder of the Vanguard Group, your assets should be allocated depending on your age and investment objectives. John Bogle singles out two big goals: wealth accumulation (creating wealth) and spending down wealth. What may really be needed to achieve your wealth-accumulation goal is to reinvest both capital gains and dividends to grow your portfolio. While spending your wealth, no new cash is added to your portfolio and portfolio returns are spent for your current needs. The stock-bond correlation is important in asset allocation. For the illustration, please see the following matrix.
Tailor your investment portfolio to your risk appetite. Your investment risk appetite is largely determined by your personality. If you are a risk-averse investor, you will apparently choose a conservative investment portfolio. The portfolio will predominantly hold investments in gold, debt securities issued by reliable issuers, and traditional cash deposits. If you are a risk-seeking investor, you will invest primarily in high-yielding stocks that carry a significant degree of risk.
is typically held by an investor willing to take no risk. The main goal of the portfolio is to preserve investments. A cash deposits represents the main holding within the portfolio.
is ideal for investors wishing to preserve the portfolio’s total value. The investments are less risky and are likely to generate not-so-high returns. The portfolio mainly comprises deposits, bonds and money market instruments to ensure a stable rate of return.
is a mixed-asset portfolio and involves mid-level risk. Within the portfolio, 50 percent are high-risk instruments. The asset composition is divided almost equally between fixed-income instruments (bonds and deposits) and equities in order to mitigate inherent risks.
carry a higher level of risk in return to higher yields, mainly comprise stocks, and are suitable for investors exhibiting risk-seeking behaviour. Risk-seeking investors must be psychologically prepared to experience market fluctuations.
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