“Titmouse”, “crane” or “bedside table”: what financial instruments to invest in in 2023

The “bedside table with money” of the joke is the dream of any passive investor or saver whose investment strategy is only to invest in an asset that always brings a return with zero risk, and do nothing at the same time. This, imagine, is quite real, and such a strategy, even in times of crisis, helped out many. That’s just a big income from such investments is better not to expect. Such opportunities are provided, firstly, by ruble deposits of highly reliable Russian banks. Even in a difficult 2022, the average interest rate on ruble deposits in Russian banks was 8.2% per annum. This, of course, is lower than the level of inflation, which at the end of the year, according to Rosstat, amounted to almost 12%, but in the spring and summer of last year, you could literally catch fortune by the tail if you put money on a ruble deposit at 18– 20% per annum (there were such interest on deposits while the Central Bank of the Russian Federation kept the key rate at a two-digit level during the most critical period for the ruble). True, only those investors who had the opportunity to deposit a very large amount on deposit at such a percentage were able to earn on this: from 500 thousand rubles. However, at present, some large banks still offer deposits at 8% per annum, even for 12 months, and since the government and the Central Bank of the Russian Federation predict a significant decrease in inflation by the end of 2023, there is an opportunity to earn on a bank deposit and certainly not lose your money if you have chosen a deposit in a highly reliable bank.

Another good option for passive income is gold, in the form of an ingot, a coin, and even an unallocated metal account (OMS) in a bank. The advantage of gold is that it can truly protect investments from inflation. Five grams of gold that a depositor bought today at a bank (gold should only be bought from banks licensed to deal in precious metals) will remain the same five grams of gold in a year, five, and ten. The price of gold, like any commodity, changes constantly while trading. But you have the opportunity, keeping your gold bar or coin in a bank safe deposit box or on OMS, to choose a suitable price and sell when the price not only pays for your costs, taking into account the commission to the bank, but also provides a return on investment. Of course, this happy moment can be expected for a long time. In 2022, having bought gold in January, by the end of the year it was possible to earn a yield of no more than 1.5%. But gold is an investment story of more than one year.

Catching a real “titmouse” is not easy. In this case, by “tit in hand” I mean an almost guaranteed income from reliable assets, but for which some effort will still have to be applied. If you are interested in such an investment strategy, you should pay attention, for example, to OFZ – government bonds denominated in rubles. The yield on government bonds is guaranteed by its issuer, the state. During the entire period of circulation of the bond, its owner will receive coupon (interest) income, and after the expiration of the circulation period, this security will be redeemed, that is, the state will fully return its face value. OFZs are issued with very different maturities, ranging from a year to several years, and, as a rule, bonds with longer maturities have higher yields than short-term bonds. Most often, the yield on government bonds exceeds the yield on bank deposits, but 2022 was an exception, because due to sharp fluctuations in the key interest rate, when the Central Bank of the Russian Federation held back the collapse of the ruble and inflation, the average yield on ruble bank deposits and OFZs almost equalized. You can buy government bonds by concluding an agreement with a professional participant in the securities market – a bank or a brokerage (investment) company, you just need to choose a reliable intermediary with a license from the Central Bank of the Russian Federation and a good reputation. The risk of non-redemption of government bonds is close to zero, although due to the difficult geopolitical situation and sanctions that have even extended to the Central Bank, unfortunately, even the most unfavorable development of events cannot be ruled out. And if the bonds “burn out”, in the securities market no one is obliged, in contrast to the loss of a bank deposit in the event of a bank failure, to compensate for the losses.

In addition to bonds, there is an opportunity to receive an almost guaranteed income in mutual funds, especially those investing in bonds. This is practically the same opportunity to earn passively and not bother, since in a mutual fund you entrust your money to professional portfolio managers who will understand better than you how to invest your money in order to ensure maximum profitability. In 2022, bond mutual funds could earn returns at the level of a bank deposit, while investing in equity funds, index funds or mutual funds that invest in securities of certain industries (for example, stocks and bonds of oil or gold mining companies) brought last year, investors only lost money. You can trust professional money managers, but you need to understand that they are not magicians, and if the entire stock market has collapsed, then they are unlikely to be able to do anything to bring your profitability to a plus.

It is possible to earn passive income by investing in real estate. If you have additional housing, for example, inherited, which can be sold, or you, for example, have already taken a mortgage loan specifically for investment purposes (purchase an apartment in a new building in order to sell it later, paying off the loan and earning a profit), you can to do if the real estate market conditions are suitable. In 2022, the situation in the secondary housing market in large cities of Russia was not the best. At the same time, when selling housing, you need to take into account the costs of processing the necessary documents, the commission to the realtor and, ultimately, the long sale periods – you cannot sell real estate in one day, these are not securities. Thus, investing in real estate can provide you with not too much and not too fast returns.

If you are ready to catch the “pipe of luck” that has not yet flown away from you, that is, you are ready to take measures in advance to reduce the risk of your investments, but subsequently reward yourself with a good premium, far ahead of inflation, then you should buy shares of reliable Russian issuing companies. The stock market has its own investment specifics, associated with the fact that you first need to choose a highly reliable broker, of course, with all the necessary licenses from the Central Bank of the Russian Federation, in order to open an account with him to purchase securities. It should be taken into account that, for example, the broker may not sell high-risk securities of medium and small companies or allow you to buy only a small amount under your personal responsibility if you are not a so-called qualified investor, that is, you do not have experience in professional companies. participants in the securities market and do not have a certificate of passing the exam to become a qualified investor or “qual”, as it is called in professional brokerage jargon. But “blue chips”, that is, shares of large highly reliable companies that regularly pay good dividends on their shares, even an unqualified investor can buy without problems. If you are a conservative investor and do not want to bother with the daily game on the exchange rate, it is better to purchase shares in order to receive dividends once or twice a year. For example, dividends on preferred (non-voting) shares of highly reliable companies can provide returns even for half a year, and not for a year at least at the level of inflation.

Once upon a time, one of the most risk-free incomes was considered to be a contribution in US dollars and euros or investments in government securities, for example, Eurobonds issued by the Russian Ministry of Finance, denominated in dollars or euros. But since 2022, due to sanctions, everything has changed – dollars, euros, as well as other world reserve currencies, except for the yuan, have become highly risky and toxic for Russians. Indeed, at any time, the Fed and the European Central Bank can ban transactions even with cash dollars and euros as new sanctions for Russians (moreover, their sale to Russians was limited back in 2022). It is now easier and more reliable for Russians to work with the Chinese yuan than with dollars. However, in order to keep deposits in yuan, you need to remember that many banks have introduced a commission for keeping deposits in any currency other than the ruble. You will not receive more than 1.2-1.5% annual yield on foreign currency deposits in Russian banks, and even the commission can significantly reduce your interest income.

The final choice of investment instrument, of course, is up to you. In my opinion, the most optimal choice, if funds allow, is to distribute them among different instruments with different risk classes and different returns. And at least a third of your savings must be kept in a reliable bank in Russian rubles, this will help insure against possible losses on riskier instruments. Good luck with your investment!