Falling prices encourage investment
Financial market participants who are familiar with investment opportunities are probably well aware of the saying “Buy the dip”, which, when translated into Lithuanian, would mean “buy an asset when its price drops”. Indeed, many people, when discussing investing, would often say that it is necessary to employ money when the prices of financial instruments fall. And it doesn’t matter at all what asset class we choose. Therefore, the current red lines and price falls may mean a great time for some investment. However, investment is needed on an ongoing basis.
“It simply came to our notice then. Otherwise, you spend all your money on discounted financial instruments. But investing is a process – it’s not a goal to become a millionaire overnight. This process is long, lasting five years or more. When you follow a strategy and invest constantly, you buy little by little, then the average price gets comfortable. The most important thing is not to get distracted. Well, if it fell by 40-90 percent – nothing terrible. “Kašėta, the president of the Crypto economy organization, said on the show.”
According to A. Klimavičienė, first of all, everyone should determine the needs and goals why they want to invest: maybe they have accumulated money, or maybe they want to live in dignity in old age. However, the latter aspiration is also very subjective and should be decided individually by each person.
“It simply came to our notice then. One way is to say: I want to travel. Another way: I want to go somewhere specifically. Then I come up with a travel plan for how and when I should get there, with what vehicle. “Investing should be done in the same way,” said the interviewee.
According to a lecturer at ISM University of Management and Economics, investing 100 euros every month, with an interest rate of 5 percent, can earn a million in about 76 years. However, investing 100 euros under the same conditions and, if successful, with a 10 percent return, would take about a million to wait about 45 years. Therefore, it is important to set the amount to be invested and set goals strictly.
Real estate – the most attractive for Lithuanians
A. Klimavičienė also advised to invest only in those financial instruments that we understand and have sufficient knowledge about. It is for this reason that Lithuanians invest mostly in real estate. For Lithuanian residents, this investment instrument seems the simplest.
“In Lithuania, one investment company compiles the Lithuanian Investment Index. We do not have such a centuries-old history as the United States or Western Europe, but in 25 years, looking at which asset classes have brought the highest returns in Lithuania, it is real estate.
Renting a home helped you earn more than investing in Lithuanian stocks. So, it is natural that real estate is the class of property that Lithuanians understand during our short history, as far as we have it here, the return is quite significant, ”said the specialist.
And real estate prices in Lithuania have risen by a fifth since last year. Therefore, it can really be an incentive for investment. However, markets in Europe are currently recalculating interest rate expectations, and the European Central Bank (ECB) is expected to raise key interest rates for the first time in July, according to V. Šimkus, an economist at Swedbank Lithuania. Markets are feeling the effects of this, which is why the euro’s interbank market rate, better known as EURIBOR, has already risen above zero.
“It is likely that by the middle of next year it could reach about 2 percent. However, there are still many factors that may prevent the ECB from being so aggressive. Uncertainty is quite high here, but yes, today the market expects a little over 2 percent 6-month EURIBOR, with which most housing interest in Lithuania is tied, and this would, of course, affect the monthly payments, ”the economist explained.
Monthly payments would rise, and the pocket of every borrower who invested the borrowed money would be affected differently.
“If we talk about a new apartment worth about 120 thousand. such an increase in EURIBOR could increase the monthly premium by about € 100. “This would not cause major insolvency problems for the entire market, but for a certain part of the population, such changes would be felt,” said the financial specialist.
A. Klimavičienė also pointed out that investors in real estate should know clearly: this requires a large amount of money. And, for example, investing in stocks or mutual funds does not require large funds. You can start investing from 10, 50 or 100 euros per month. It all depends on each person’s financial capabilities.
“Knowledge about investing can be accumulated for a very long time, but until you start and put in your own money and see how you value risk and how you feel when value rises or falls, you will not know. Therefore, it is really possible to start with small amounts and if there is no knowledge, there are tools where you can invest quite easily – there professionals choose how to split the investment, because the next basic principle of investing is not to put money in one basket. It needs to be broken down. The fragmentation can also be entrusted to professionals, ”she said.
As the economist V. Šimkus explained, real estate is a rather complex asset class – it balances between consumption and investment threshold – we can buy a home for ourselves and live in it, but we can also rent it out. Therefore, it is difficult to answer whether now is the right time to buy it. It very much depends on personal needs and opportunities.
“If we need real estate and we can afford it, that’s one question. If we want to invest, and especially with leverage, which significantly increases the risk – we need to evaluate many indicators: inflation, depreciation of the apartment, my finances: how much money I can afford, how much interest I can tolerate, how much money to hire, maybe we can wait for quieter times. It would be necessary to calculate the total amount of your financial liabilities, maybe even the first loan has not been repaid, so it may not be worth taking the risk to buy a second home at the moment, ”the economist shared his advice.
Offers other tools
And here is the investor V. Kašėta said that there are several reasons why he does not choose real estate as an investment tool.
“Looking at the biggest declines in real estate – the crisis of 2007, the crisis in Japan, various other crises, we can see that when real estate depreciates, it will not recover for the next 10-15 years. This does not satisfy my strategy. I’m not investing for 70 years, but to beat inflation. Cryptocurrency cycles usually recur every 18 months. “It’s more acceptable to my strategy,” he said.
V. Kašėta explained that the cryptocurrency market did not develop in a vacuum – it is also affected by market laws. When the moment of euphoria begins, many want to buy one currency or another, start buying. According to the interlocutor of the show, one of the best-known examples – Bitcoin – has a limited quantity, and when a large number of investors want to buy it and buy it, the price of this currency rises. Sooner or later, recessions follow. So it is clear that there are cyclicalities in this market as well.
Moreover, as the cryptocurrency expert said, this market is also not a lottery, as some might think: and there are various forecasting methods here. There are nearly 20,000 different cryptocurrencies on the market today. So those who do not know anything can get lost in such power.
“It would probably be safest to find a list by capitalization and invest in the largest capitalization instruments: Bitcoin, Ethereum and all the next twenty,” said the investor.
He also added that high success and high returns require investing in higher risk instruments rather than cryptocurrencies. Although it is no secret that in this market it is possible to discover start-ups who belong to a high risk group.
“By diversifying very heavily, by breaking down investments, it is possible to find a start-up that will create the technology of a coup, a breakthrough tomorrow or the day after tomorrow, and will really be worth it. investments. But it takes a lot of time to invest in knowledge to understand how it works. If it is not possible to understand the market, then it is better to choose the equivalent of investment funds – money transferred to management in accordance with the manager’s promises, past performance or future objectives. Only, of course, we need to beware of scammers, “said the president of the association” Crypto economy organization “.
As A. Klimavičienė explained, if a person chooses to invest, for example, in shares, he should clearly know what a financial instrument is. The same applies to all securities or other financial alternatives.
“If I invest in stocks, I invest in business. Is that what I believe in that business, that sector, that company? The word “I believe” here and that expectation is very important because no one will promise you a return. If you believe the electric car market has a future, you can invest in the electric car market, but if you invest in one company, you are also taking a risk.
Maybe in ten years we will all drive a Tesla car, and maybe there will be other electric car manufacturers that will dominate. Similarly, 15 years ago, Nokia looked like a very good investment, but if those who believed in the future of mobile phones had invested all their money in the company, they would not have been so happy today. Therefore, risk diversification, even after sector selection, is very important, ”said a financial market expert.
According to her, it is safest to choose investment funds for beginners. Especially if a person has little interest in the world of finance and does not want to be interested in it. Funds allow you to take advantage of emerging financial markets and make money from them, even if people are not interested in investing. There is no need for day-to-day interest in figuring out when to buy or sell. Especially, it does not require large investments. And if people are interested, they can choose where and how much to invest, but then there is a higher risk.
“It simply came to our notice then. Some love roller coasters. For example, cryptocurrencies are roller coasters – the heart must be strong to withstand those ascents and descents. Others would like to ride calmly. Perhaps 5-7 percent are satisfied with them. per year to earn more than inflation, but they don’t want to earn 100 percent. or lose the 90’s.
Of course, if you are interested, you can dedicate at least part of your portfolio to riskier classes, but here again it depends on people’s approach to risk: who will need 10%. to invest 20 per cent of the invested portfolio in riskier investments. However, by standard, for long-term investments and in the absence of a very high risk lover, risk classes should not make up a very large part of the investor’s portfolio, ”said the interviewee.
V. Šimkus explained in the program “Investment Academy” that due to the already mentioned policy of central banks and the prevailing uncertainty in the market, there will be a rotation between different types of shares in the next few years.
“In an environment of extremely low interest rates, so-called growth stocks are performing very well, with very far-reaching returns, high investment in themselves, low dividends and the expectation that they will grow and grow very strongly. At a time of higher interest rates and inflation, companies that pay higher dividends and return profits to their investors earlier are more valued. These are traditional retailers such as McDonald’s, Coca-Cola and others.
But again, no one knows what the future will be like, how that macroeconomic environment and central bank policies will turn out. Due to this uncertainty, we have very large market shocks and it will probably take some time before we know what we will be like tomorrow, ”the economist emphasized.
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