Just like the 2008 financial crisis, the coronavirus pandemic hit the markets hard in 2020 and the global economic situation remains uncertain and unstable even now. In this context, investors are looking to shield their capital. This is possible with risk-free investments where the capital is 100% guaranteed. But is that the right solution when most of these savings products no longer offer any real prospect of returns? Is it even desirable? Especially since taking a risk won't necessarily end in an accident... Birdee takes stock.
Despite historically low interest rates, there's an unprecedented amount of money deposited in conventional savings accounts. There are several reasons for this:
However, in return for these advantages, the interest rates that savings accounts offer are very low. Worse yet, they are often lower than inflation. You may not notice it because, if you leave the money untouched, the amount shown at the bottom of your statement will increase slightly year on year thanks to interest. In reality, however, the combination of low rates and inflation means you are losing purchasing power: consumer prices are rising faster than the interest you're earning.
It really makes you wonder if it is wise to keep your money in a risk-free savings account. The answer is yes, provided you put it to good use. Indeed, savings accounts should mainly be used to build up a buffer, a financial reserve to cover an unexpected event: a washing machine or radiator breaking down or a car that needs to be repaired. Beyond this need, it is advisable to invest in other, riskier investment vehicles. And Birdee encourages you to do so! We're here to guide you. Investing has never been easier.
In simplified terms, when it comes to an investment, risk means market liquidity or price fluctuations that may lead to a loss of capital. In other words, when you sell your securities, the price you get may be lower than when you bought them. A risky investment, therefore, offers an attractive potential return but, at the same time, also carries one or more risks.
Depending on the type of investment, you may face a loss of capital, your funds being locked in, high volatility, etc. In investment terms, return is therefore closely linked to risk-taking. This is known as the risk/reward ratio: the greater the risk, the greater the potential return.
However, this principle must be put into perspective by taking into account the duration of the investment. Over the long term, most investments prove fruitful, smoothing out the ups and downs. Investments in the stock exchange are perhaps the best example. It is extremely risky to buy stocks today and expect to make a capital gain in a few days or weeks (that's speculation). On the other hand, investing now and aiming for a positive return in 5 or 10 years is far more reasonable and attainable.
If that were the case, the stock exchange, securities accounts, unit-linked life insurance, crowdfunding, rental real estate... none of these options would exist!
Of course, the risk of capital loss cannot be eliminated entirely, but it can kept within limits by taking a few precautions:
In conclusion, risk can be your "ally" as long as you put a number of safeguards in place. Shape your investments to your needs and where you are in life. Birdee can support you in this process by offering pre-diversified investments, adapted to your profile and goals, in a simple and transparent manner.