How to evaluate your investments?
by Michal Němec / MINEFI, Private Financial Advisor
Inflation is slowing down. Domestic inflation reached “15” in March. Prices in the Czech Republic rose by 15% year-on-year in March and slowed down compared to February. Inflation is expected to ease up in the coming months. For example, according to experts from Česká spořitelna, it should reach 10.8% in June and fall to single digits at the beginning of the third quarter. According to them, the annual average inflation rate will reach 10.3% after 15.1% last year.
To preserve your savings and at least partially eliminate the impact of inflation on the value of your assets, you can choose between savings accounts and investments. Banks will react quite actively to market developments in the coming months, and we expect the interest rates they provide to clients on savings accounts to decline prospectively. The current review shows that not much has changed since the beginning of the year.
We recommend evaluating investment offers very well and being cautious. Inflation will not be with us for long and trying to beat it by taking risks is not a good way to go. I myself have been approached several times this year with offers to invest in gold. Although the salesman’s story was very nice, we need to stick to the facts. If I had invested my money in gold in USD a year ago, I would have been disappointed with a 2.7% return today. However, if I had invested in CZK, I would have even had my money in the negative -2%. So, in all respects, it would be better to have the money in a savings account or in a conservative type of investment.
The environment of investment opportunities is much more vibrant and unfortunately also wilder. The range of companies (corporate bonds) that offer appreciation of “up to” 12% or more has expanded recently. We advise a lot of caution, as you have to consider a much higher risk of possible loss of investment if you “bet” on the wrong card. In social media in particular, we see a diverse range of high-risk investments. If you come across any of the ads and would like an opinion, do not hesitate to contact us and we will be happy to discuss any risks with you.
We recommend that you evaluate investment offers very well and be cautious. Inflation will not be with us for long and trying to beat it through risk taking is not a good way to go. I myself have been approached several times this year with offers to invest in gold. Although the salesman’s story was very nice, we need to stick to the facts. If I had invested my money in USD gold a year ago, I would have been disappointed with a 2.7% return today. However, if I had invested in CZK, I would have even had my money in the negative -2%. So it would be better in all respects to have the money in a savings account or in a conservative type of investment.
Today, we also have some tips for you on how to spot a risky investment and a not-so-healthy company offering these bonds.
1) Financial statements – in the Czech Republic it is mandatory to publish information about the current situation of the company every year, whether it is financial statements, tax returns, etc. For some companies that issue bonds for their investors, we can’t find any information even a couple of years back that would help us know how the company is doing financially. This is the first sign of increased risk. In normal life, you also wouldn’t lend money to someone who doesn’t tell you anything about themselves.
2) Motivation for why someone wants to borrow your money – there can be several reasons:
Banks don’t want to lend it to them or no longer want to lend it to them. They haven’t convinced their business partners to partially fund them. They have not been able to fund themselves with equity or through equity channels that normally fund their type of business – e.g. venture capital, start up, etc.
3) Signs that all is not well in the company – e.g. negative EBITDA, negative operating cashflow, increased cost of new debt, frequent changes in board of directors, unavailability of reports, poor quality of reports, questionable auditors and reports, working with known persons, no collateral in debt lines.
We monitor all of these parameters for our clients in an effort to minimize the risk of potential losses. If you do not feel you are an expert in this area, we would be happy to help you with advice, discussion or just another opinion.
There are still plenty of investment opportunities worth pursuing.
Michal Němec / MINEFI
privátní investiční poradenství
kancelář Ostrava: Francouzská 6167/5, 708 00 Ostrava – Poruba
kancelář Opava: Beethovenova 2, 746 01 Opava
mobil: +420 608 362 986