Political crisis followed by economic crisis seems to be a recurring theme in Pakistan.
Add global geopolitical instability, commodity supercycle, and double-digit inflation rates in mix and more just get some too complicated.
With gasoline prices rising inflation set continue the upward trajectory after a collision with two-year record of 13.4% in April.
In this scenario, the question on everyone thinks what asset classes for investing in and how?
If there is one integral truth right now, your savings will continue to lose their value due to inflation, so it is imperative that any excess funds are at least invested. in risk-free tools.
In this world there is no such thing as risk-free, but closest to anything risk-free is a borrowing made government for various periods of time, whether for three months or for twenty years.
Read: How to invest
government bonds
If a government takes for one year or less, it takes against what is called a “treasury bill”.
If a government takes for more how one year he often borrows against something called Pakistan Investment Bonds.
In both cases government promises to pay a mark-up’ on the funds he borrows from people or other investors.
To clarify what funds you have invested in your bank account, estimated at about 55 percent of these funds are invested by banks in either Treasury bills or bonds in which they receive a large higher income than what you receive as a contributor.
With that in mind, it makes no sense use a bank as an intermediary when you can directly borrow government.
But how does one do this?
This can be done by opening a Portfolio Investor Services account. with your bank. Initially bank they may refuse, or apologize, but if you insist, they will open it.
After opening, you can instruct bank invest in either Treasury bills or bonds. Due to high inflation and higher interest rates, it’s completely possible block interest rates in excess of 13 pieces per year for various periods of time.
Considering how things are going, maybe possible to block even higher rate. Typically, interest rates follow cycle: they peak and each peak is followed by a trough. Fixing interest rates at or near the peak allows the investor to maximize returns.
This is a difficult question and for for the sake of of clarity, I tried to keep it simple. However, we can clarify on it’s further in in future.
National Savings Scheme
In a similar way, people Can also invest in in governmentNational Savings Scheme. Due to rising interest rates, next a few months would give an ideal opportunity to block in high interest rate for up to ten years.
In effect, despite of direction of interest rates in in the future you could block in definite rate and benefit from the same. If you senior citizen, highly recommended to invest in Behbud Savings Certificate of National Savings Scheme to get best fixed-income that also without taxes.
Similarly, if you are a retiree, you can open a retirement benefit account which has similar rates and also without taxes. this is extremely important for senior citizens to manage their risks and allocate available funds for risk-free and government-supported schemes, instead of being fooled by shenanigans of banks and other charlatans.
Talk of charlatans, if anyone trying to sell you a bank insurance product, which is often your bank of choice, or someone cold calling you, run away from him. Product structured in a way that he can only cause misery and nothing else.
While blocking the peak or close to the peak rate for fixed income is good conservative goal real money it should be made in equity market, or commonly referred to as stock market.
Read: How to develop a culture of investment in stockpiles can save Pakistan economy
Stock market
During a crisis or successive crises, in our not-so-unusual case, shares of highly profitable and growth-oriented companies available at a significant discount compared to previous prices. What does it really mean?
Buying shares of company, in effect makes you a partial owner of company among many others, but the owner nonetheless. By profitability of the entity increases and it is able to generate enough free cash, it is expected that the value of your stock will also increase.
Expectation of this value, also called price, controlled by buyers and sellers of stock in stock market. During times of crises, price of profitable businesses may not be materially affected by an economic downturn or decline, providing an opportunity buy the same shares at lower prices. The economic crisis provides such an opportunity; However, one one must be careful not to be tempted by falling knives.
Crisis or crisis is good time to expose in stock market. Instead of of investment in one go, it’s better set up plan buy on monthly, so one can average out in cost the foundation.
Establishing a monthly investment regime allows one to avoid concentration and allows one to capture the best prices in price case decline further and so on. Many promotions are currently on local exchange in their ten-year short in terms of score, and matured for growth once economy bring back on track. This is a highly recommended track if you young and have a high risk tolerance. If you are close to retirement or have already retired, the impact on stocks market should be minimized.
But which shares one invest in? For beginners, avoid whatever your broker recommends. Make your own research. This yours hard-earned money after all.
Unfortunately, we do not have specialists financial advisers, and what a handful of them exist, they are charlatans – so pick your advisers carefully. If it’s too hard, invest in mutual fund that invests in stock. Once you get the hang of this, you can always invest directly in stock market.
Even though it’s easier now buy United States dollarSupply of which the already limited in in market. Why should in people suffer from constant bad economic policy? State in many ways failed to ensure preservation of value of PKR or grant permission environment for sustainable and large-scale economic growth.
It’s hard times but frequency of such challenges It has made challenges eternal. Crunch makes it possible to position one portfolio for growth for for a long time-term but it must be supported sound economic policy. One can hope that some sense will prevail, and better policy creation replaces special interventions that kept us in eternal crisis mode.
Economist writer.
