When to think about investing
The sooner the better. Any amount is enough to start investing. However, it is much more important to clearly understand the purpose for which the money is directed.

Let’s say you have free 100 thousand that you would like to invest in stocks or securities. Before proceeding with any action, you need to make sure that you will not need this money in the next few years.

If there is a financial cushion, you need to decide on the investment period. For understanding: three years in the investment market is considered a fairly short period. It is better to immediately set yourself up for a period of five or more years.

What are the options for investment
If you already have a “financial cushion” and you are sure that you want to direct the money specifically for investment, then it is time to start studying the available instruments from which the investment portfolio is formed.

Five main instruments can be distinguished: bank deposits, bonds, stocks, real estate and gold. Each of them has its own level of profitability – in other words, the money that an investment in an instrument can bring, as well as a level of risk – the likelihood of unforeseen situations that can affect profitability.

For example, a bank deposit containing a financial cushion is characterized by low risks and low returns. The likelihood of a bank defaulting on its interest payment obligations is extremely low. At the same time, the level of profitability on deposits often covers only the current inflation.

Simply put, keeping all investments in a bank deposit is safe, but not profitable. It is more efficient to use a deposit to store only a part of investments – then this will reduce the riskiness of the entire portfolio.

Other investments – such as bonds, stocks and real estate – can provide higher returns, but with higher risk. The investor’s task is to distribute money among different instruments so as to obtain an optimal balance between risks, profitability and duration of different instruments. This is called diversification.

Bonds are an interest-bearing loan that you give to a company, state, or region. Bonds are beneficial for companies, as they allow them to receive money for development on more favorable terms than in banks. For investors, bonds are also beneficial in that they give a higher percentage than when keeping money in banks.

The main risks in bonds are associated with two factors: the reliability of the borrower and the likelihood of a change in the key rate set by the Central Bank. When the rate rises, old bond issues fall in value. Conversely, the value of securities rises if the rate falls.

For example, in December 2014, the Central Bank raised the key rate overnight from 6.5 percentage points to 17% per annum. Following this, banks increased interest rates on deposits in order to attract more depositors. And those who issued bonds had to raise rates on new securities in order to compete with bank deposits. As a result, the yield on new bonds has become higher, while the real yield on previously issued securities – lower.

The reliability of the borrower is related to its ability to fulfill obligations in the future. A young, actively developing company can offer a high percentage, while it cannot be ruled out that the company will go bankrupt altogether.

The most striking example is the bonds of the Transaero airline. In October 2015, she was unable to pay the yield on securities on time and declared a technical default. The technical deflot is just the beginning, sometimes it happens that this is a really technical procedure, after which the company pays anyway. As a result, Transaero was completely bankrupt.

On the market you can find bonds of companies with a low credit rating, but with very high payments to borrowers. Such bonds are often called “junk” – they are unpredictable, high-risk, but at the same time highly profitable. This is a kind of extreme in the financial market.