What are INVESTMENT INSTRUMENTS and how to choose them correctly?

In order for money not to depreciate, you need to make it work. You can place savings on a deposit, buy federal loan bonds (OFZ) or large companies, become a shareholder, buy real estate or invest in foreign currency. There are many ways to invest. In this article, we will tell you what you should pay attention to when choosing financial instruments and how to create a balanced investment portfolio.

Types of investment instruments

An investment vehicle is an asset in which an investor invests money in order to receive a return. All investment instruments can be divided into:

Savings instruments are designed to protect capital from inflation and other risks. This category includes deposits, OFZ, precious metals.
Growth tools - aimed at generating potentially high income. These include stocks, corporate bonds, real estate, mutual funds, structured products

Before investing in a particular tool, you need to study it. Here are a few criteria to look out for:

Risks and returns. Any investment is associated with risk - the higher it is, the higher the potential return on investment. Before investing, take a risk profile to determine your risk tolerance. The choice of financial instruments will largely depend on your willingness to take risks.
Timing of investment. For example, stocks can be invested for an unlimited time - at least as long as the company exists, while bonds and structured products have an expiration (maturity) date.
Periodicity of payments. Income on investment instruments can be paid out once (for example, income from the sale of shares) or with a certain frequency (for example, bond coupons are paid according to a predetermined schedule).
The minimum entry threshold - for example, to purchase one OFZ you will need about 1,000 dollars, and to purchase real estate - several million.
Currency. There are investment instruments on the market both in dollars and in foreign currency.

In most cases, the choice of investment instruments depends on the investor's attitude to risk. Those who are not going to take risks should choose assets with a low degree of risk - OFZ, deposits, precious metals. Investors who are willing to take risks for the sake of an increased rate can look at stocks, mutual funds, currencies, derivatives market instruments.

Consider the advantages and disadvantages of the most common investment tools.

Stock

Shares are securities evidencing ownership of a share in the capital of a company. They provide an opportunity to receive dividends in case of positive financial results of the enterprise, as well as earn on the difference between the purchase price and the sale price.

Features of investing in shares:

low entry threshold (for example, shares of Neftegaz in October 2020 are traded at .53 dollars apiece, and Sberbank - at 2.77 dollars);

high liquidity (the shares of most large companies are in demand, and they can be sold at any time);

potentially high returns;

low predictability of quotes (the stock price is influenced by many factors - from events within the company to the state of the global economy).

Bonds

Bonds are debt securities issued by a company. By buying them, the investor actually provides a loan to the issuer (company or state). For the use of money, the issuer of the bond undertakes to pay interest to the investor - coupons.

Bond parameters:

face value is the amount of debt that the company is going to pay the owner of the bond upon expiration of its validity;
maturity date - the term for repayment of the debt to the holder of the security;
coupon - the amount of interest paid on a bond.

When choosing bonds, you should pay attention to the level of yield, liquidity of the security, and maturity.

Bank deposit

The most popular and easiest way to invest is to deposit money. You should not count on high profits on bank deposits, because their yield in 2020 is only 4.2-7% per annum.

Among the advantages of bank deposits, minor risks can be distinguished. The disadvantage is the low yield, which barely covers inflation.

Real estate

Another common way to invest money is to buy real estate. The main task of the investor is to choose a liquid object and properly dispose of it.

There are two ways to make money in real estate:

receive passive income from the lease of the object;
sell the item at a higher price.

Should know! During the crisis, prices for housing and commercial real estate are declining. Since any crisis is always followed by a recovery phase, it is worth buying residential and commercial infrastructure at this very moment. In the long term, the object may rise in price.

Precious metals

If you do not want to understand finance, monitor the situation on the market, and independently choose assets for investment, pay attention to trust management (DU). Here's how it works: you choose a ready-made investment strategy based on your goals and interests, and a professional manager implements it. It manages assets on your behalf and reports results regularly.

Features of trust management:

the objectives of trust management, the composition of the investment portfolio, and acceptable risks are agreed in advance and documented; assets transferred for management are not subject to debt collection; minimal participation of the investor - all work on asset management is performed by a professional manager.

Own business

To start your own business, you need to have the impressive initial capital. There are several ways to start your own business:

buy a share of a ready-made business;
open your business;
acquire a franchise of a well-known brand.

Before starting your own business or buying a stake in a business, carefully study the market. Weigh the degree of possible risks, the level of profitability of a startup or an existing enterprise.

What to remember

There are many investment instruments on the market that differ in risk and level of return. Investments in stocks and mutual funds promise potentially high returns but are risky. But bank deposits, precious metals, and OFZs are considered low-risk instruments and help protect capital from drawdowns in a crisis. To better understand which instruments are right for you, you should clearly define your financial goals and go through the risk profiling process.