The volatility of some financial markets, while seemingly risky and dangerous, can sometimes thrill private investors. But after extensive losses throughout the crisis, investors now prefer to wait and keep what they accumulated instead of reinvesting. Isaac BECKER, a member of the Association of U.S. Financial Advisors and an international financial consultant, described the current strategy investors are using, which is called “moving on thin ice”.
Isaac, how has the European financial crisis affected the mood of private investors?
Investors now are anxious and confused. There’s a really extraordinary situation developing in the world market of private investments at the moment. Before, investors had a range of options available to them for investments, which they either used or didn’t. And if they wanted to receive more information, they would either go to the bank, an investment company, or seek advice from a financial adviser. Some would even keep the money without any further investment. But things have changed drastically – the strategy of “buying and holding” no longer works, and simply keeping the money is unprofitable. Even major currencies like the dollar or the Euro are no longer stable enough to lean on; their value just in the coming year is too difficult to forecast. And what 100 dollars or Euros can buy in the next five or even ten years is impossible to say. Right now, wealthy investors are focused on keeping what they’ve earned.
Which method of saving money is relevant for investors nowadays?
Well, it is traditionally believed that investors can save their money several different ways. One of these is to deposit them in safe banks. But right now, I can’t justifiably say that banks, even the largest ones, are safe places for investors to put their money. Western banks are offering very low rates for deposits right now – close to zero, as a matter of fact – which tells us that depositing money isn’t widely considered a good option for wealthy customers in the current atmosphere. The instability of banks, together with the fact that the interest (if you ever end up getting it) will barely keep up with inflation rates, makes the whole option too risky.
But in Russia, the situation is different – in fact, interest rates on deposits are increasing.
The situation here is different because banks are having problems with liquidity and they need more money. In actuality, an increase in Russian interest rates is not a good sign for investors, not when Western bank rates are almost zero. Large and medium Russian investors nowadays aren’t tied to domestic banks – some of their money they keep in Russia, some abroad, some in real estate, and some in stocks, and so on.
A few years ago, these problems with saving money didn’t exist, but it’s boiled down to an art lately. Naming a good set of tools for saving your money is difficult, where before, anyone could simply walk into a bank and ask a bank employee for advice, who would tell you that keeping your money in deposits, bonds, and other such structured guaranteed products was a good idea. There are just no simple answers for wealthy people anymore. And unfortunately, various surprises and classic methods of capital preservation can lead to substantial losses.
You mentioned before that some of the world’s largest currencies are unstable today. How does the ruble measure up comparatively?
The ruble is a pretty strong currency when compared to the rest of the world, but only when energy prices are high, so I wouldn’t go so far as to say that the ruble is a good long-term savings currency.
Which assets are important for investors to pay attention to?
I would say the first step is to pay attention to the shares of international companies that aren’t dependent on the state of macroeconomics or the global financial systems. These are the companies that produce what we eat and drink, our medications, and so on, such as “McDonalds”, “Coca-Cola”, “British Tobacco”, and other such companies. Mostly everything else is risky for an untalented investor – when the stock markets start shifting, it’s very possible and very easy to lose a large amount of money.
In what ways is Russia attractive to foreign investors today?
In terms of the stock market, Russia is a spicy addition to a foreign investor’s portfolio. It’s generally believed that investors should always have a little spice, to add some additional flavor. But the risk should be minimized so that an investor can overcome it. In Russia, a foreign investor should see the high risks, but with those risks come high-yielding assets. These can potentially bring in large losses, but they can also bring large profits.
Of the products that interest investors, which ones are appearing on the market in the near future?
Russia now faces a delayed wave of interest in structured products – these will turn out to be very popular because they suggest a degree of investment protection. While the popularity of these products is declining in the West, it is only just beginning in Russia, now that specialists working for large domestic companies have started to create new products and offer them to private investors. These are the products that will be enjoying the greatest amount of popularity. Essentially, though, these products are just a fad, and cannot solve the greater questions surrounding money preservation.
What strategy or method would you suggest for investors this year?
I would advise a strategy that I like to call “moving on thin ice”. An investor has to be very careful nowadays, because none of the problems that existed in 2011 have been solved. And we’ve moved very smoothly into the new year with a whole barrage of problems. The U.S. and European economy still have unresolved issues, and if the demand for oil and gas drops, these major problems can sprout up in Russia as well. At the same time, a partial growth spurt in the stock market is possible, such as the one we saw from January to March. Many experts suggest that the market is simply tired of fear, and investors have started buying assets at their own risk. Overall, though, I can say that this year will most likely be challenging, and big surprises are most likely in store.
“Dr. Isaac Becker is a renowned international financial consultant, a member of the Association of the U.S. financial advisors, and a member of the Personal Finance Society of Great Britain. For his work, Becker has received the International Certificate for Financial Advisors from the Chartered Insurance Institute (London). Isaac Becker specializes in working with VIP clients and advising banks and financial companies on the effective organization of Private Banking and Wealth Management”.
Author: Anastasia Yakovleva