Category Archives: Smart money

Why do so many frauds appear in the crypto world?

By Smart money, , , ,
Cryptocurrencies

The truth is that in no field of investment are there as many wrong opinions as there are about cryptocurrencies.

And in the online environment there are not only erroneous ideas, but also numerous misinformation and outright frauds.

There are several reasons why this happens:

1. The cryptocurrency field is very, very young

Blockchain technology and the first cryptocurrency, Bitcoin, were born in 2009, so only 13 years ago.

On the scale of history, this literally means YESTERDAY!

It is no exaggeration, if you consider the fact that classic instruments such as shares or bonds have been traded for several hundred years.

Not to mention real estate or precious metals, which have been known for several thousand years…

Therefore, being a field that is JUST at the beginning, it is normal that it is very little known.

Not only is the number of specialists reduced, but also the ideas that reach ordinary people are often distorted, because they come from people who really don’t know what they are talking about.

2. The field of cryptocurrencies is very innovative

Here we are dealing with some ideas that have the ability to change completely, to revolutionize many other fields.

E.g:

  • the way we transfer money from one to another and the way we make payments;
  • the way we store the value;
  • the way we lend money, or make other types of contracts between us;
  • the decentralized way of approach, in which the center is no longer the “system” or any authority, but even the consumer, i.e. the common man.

Being such an innovative field, cryptocurrency technology will bring many changes.

That’s why the old financial institutions (including banks) are scared by these changes and are doing everything possible to “put rust on the blade” of these innovations.

Including through intentional misinformation.

3. The field of cryptocurrencies brings a lot of money

There is a real connection between the field of cryptocurrencies and the idea of making money. Sometimes a lot of money.

Because this was possible in the past, under certain conditions, and it is likely to be possible in the future (also, under certain conditions).

And every time the idea of a lot of money comes up – as it happened in the past with every “gold rush” – 2 things happen:

  • on the one hand, many ordinary people let their imagination run wild and end up making extremely wrong decisions, which bring them great losses;
  • on the other hand, there are fraudsters and thieves, who push people to make extremely wrong decisions.

Get rich in the stock market overnight. Myth or reality?

By Smart money, , , , ,

To be a successful investor it is essential to understand and overcome the biases that often lead to wrong investment decisions. A common misconception, especially among many new investors, is the belief that investing in the stock market can make them rich overnight.

The scenario seems real in that some investors end up making big gains at one point, but in this case, more often than not, the investment was made years ago.

Success is due to patience, emotional intelligence or vast experience rather than luck or a great trading opportunity that “struck” overnight. Financial literacy and staying up-to-date with the most important news and events are ingredients that also make the difference between investment success and failure.

The stock markets are constantly changing and it is not good to expect big and quick gains. This fact does not help you concretely, but, on the contrary, adds even more pressure on you.

That is why, before you actually enter the market, review the relevant information and be aware of the associated benefits and risks.

Perhaps along the way you will be pressed for time and this will make you want to “cut corners”, simplify complex decisions and thus become overconfident in your decision-making process. But keeping your expectations realistic not only gives you a balanced point of view, it also helps you be rational.

Moreover, because the decisions you make trigger certain processes, biases can actually prevent you from having an optimal approach (optimal does not mean perfect!).

At times when you seek to be perfect in this area, you begin to give too much importance to some things, leaving others on the outside.

With limited resources as an individual, it is better to seek an optimal and not a perfect allocation of them, because the inevitable errors will drain your energy and make you lose your focus.

You have to remember that in investing, you don’t aim for the impossible, you just have to eliminate the errors to become constantly better.

That is why, if you avoid major mistakes and have some understanding of the markets and the economy, the odds of becoming a successful investor are completely in your favor. But don’t think that this is the secret to becoming rich overnight.

Those who are extremely confident and also have the misfortune of having…luck in the beginning, believe themselves far above the level of those who have some experience and have also recorded losses among their gains.

But these lucky beginners will be the most shocked by the markets, and the return to the ground will be more painful for them.

By constantly learning about “investment psychology” you will know how to manage other emotional errors that can occur in any investor.

The most common prejudices and preconceptions that can lead to wrong investment decisions:

  1. Confirmation – some investors are overconfident in their decisions, focusing on data that seems to confirm, rather than disprove, this.
  2. Attraction to “sensational” information – as investors are bombarded with a plethora of information every day from financial commentators, newspapers and stockbrokers, it is difficult for them to filter it to focus on the relevant information.
  3. Aversion to potential losses – some investors refuse to sell losing investments in the hope that they will get their money back. But, in addition to money, they can also lose their self-confidence.
  4. Incentives – the power that earnings and incentives can have on human behavior often leads to exaggerated frenzy.
  5. The tendency to oversimplify – in seeking to understand complex matters, investors tend to want simpler explanations, but some matters are inherently difficult to explain and do not lend themselves to simple approaches.
  6. Hindsight – this state of mind prompts investors to eliminate objectivity in evaluating past investment decisions and inhibits their ability to learn from mistakes.
  7. Confidence Transfer – Speculative bubbles are usually the result of groupthink and “herd” mentality. This concept describes a certain kind of inner comfort that an investor can feel when they think that “others are doing the same”, even if their decision is not necessarily a good one.
  8. Neglecting probabilities – investors tend to ignore, overestimate, or underestimate the likelihood of outcomes other than those they have calculated. Most are inclined to oversimplify the process and allocate a single point estimate when making certain decisions.
  9. Anchoring in the past – represents the tendency of investors to rely too much on a reference or information heard in the past when making a decision.

To remember :

  • Understanding these biases can lead to better decision-making, which is fundamental to reducing risk and improving investment returns over time.
  • Shortcuts especially do not work in the financial capital markets. Make sure you follow a disciplined, rational and balanced approach to investing, always keeping in mind the long-term perspective, company fundamentals and market analysis of the sector concerned.
  • Investors who want to take shortcuts often end up losing their invested capital and blaming the markets for their own preconceived decision.
  • The reason our mind tends to simplify or make decisions based on trusting certain situational patterns without applying its own filters is because it wants to reduce energy. Thus, if you are just starting out and want to become a profitable investor, you need to make sure you have the mental energy and patience to avoid these prejudice traps.
  • Financial literacy is what makes the difference between investment success and failure. Invest in yourself first, in your education, to make sure your money starts working for you and not the other way around!

How do we protect ourselves from inflation?

By Smart money, , , , , ,

Inflation

The signs of inflation are becoming more pronounced and have begun to be seen in the wider world. Although the Federal Reserve and the Central Banks assure us that this rise in inflation is temporary, things are not so sure.

It would not be the first time that the authorities of any kind assure us that not much will happen and yet, after these assurances, exactly what they assured us will not happen happened.

It seems that we are in shortage of raw materials and inputs of all kinds: industrial metals, plastics, wood, foodstuffs, semiconductors and many more… and this contributes greatly to rising inflation.

Not all of these increases have been passed on 100% to final consumers, but they will be passed on in the near future. In other words, products of all kinds will continue to become more expensive in the near future.
The combination of low production during a pandemic + money injected into the system + billions of people escaping lockdown and restrictions and preparing to consume and travel, all this forms a super favorable cocktail for inflation, at least in the short and maybe medium term.

Who loses because of inflation?

  1. Those who save – Cash or savings accounts with zero and some interest + those kept in long-term deposits will be affected. They are already devalued compared to a few months ago.
  2. Consumers – Because most of the products and services we consume become more expensive.
  3. The heavily indebted (who have variable interest rates) – Because variable interest rates will most likely increase.
  4. Part of the investors in shares – Inflation creates some disturbance on the stock market, especially for those who hold growth-type shares who live on debt and do not produce enough cash flow and profit. Inflation creates the preconditions for rising interest rates, and this could lead to a decrease in the quotations of many companies, especially those that:
    •  are indebted
    • do not produce enough profit and
    •  are heavily dependent on the price of raw materials and that they cannot afford to easily transmit those costs to consumers.
  5. Fixed income bondholders – Fixed income instruments depreciate when inflation rises.

Who wins due to inflation?

  1. Indebted States – Given that most government securities are issued at fixed interest rates, below inflation and in the long term, states have the opportunity to reduce their debt burden through inflation. Well, what does inflation mean? Devaluation of money. And who benefits from the devaluation of money? Those who borrowed money with fixed interest and, more precisely, who are the biggest borrowers who benefit from low fixed interest rates? They are the issuers of government securities, ie the States.
  2. Manufacturers – Inflation means the appreciation (in monetary terms) of real values in the economy: goods and services that meet real needs. They are not necessarily valued, but only valued in monetary terms – more money on the market, the same amount of goods and services, resulting in more money for the same amount of goods and services. Of course, producers can lose if they do not pass on to consumers the high costs of raw materials. In the end, however, most producers will raise their prices if the market allows it.
  3. Goods and companies producing goods (energy goods, industrial metals, agricultural raw materials)
  4. Real estate owners – real estate is traditionally a good hedge against inflation. All raw material prices have risen – well buildings are made of raw materials and now it costs much more to build a block of flats or a house than last year. If you already own that house / apartment, then the value of your property has just increased due to the increase in raw material prices.
  5. Shareholders in companies producing solid cash flow will most likely benefit from inflation. This would include companies that have a low degree of indebtedness and a high profit margin, this includes companies that can easily make products more expensive (they don’t have much competition): this includes banks and other solid businesses that are cash flow machines.

What can we do concretely to protect ourselves from inflation?

  1. Pay debts with variable interest rates – If we have money lying in deposits, then it would be an obvious but important step. Even if we can’t pay our loans in full, it’s good to pay in part. With inflation, interest rates increase and consequently your bank rates will increase.
  2. Convert variable interest loans into fixed interest loans – If we cannot pay our loans, we can try to renegotiate / refinance them to convert them into fixed interest loans. If there are quite a few options to obtain long-term fixed interest loans, we can look for solutions that cover at least one period of the loan, if not the whole period.
  3. Beware of bonds and government securities – If we have bonds or government securities with fixed interest, along with inflation, they will decrease in value, and the interest paid by them may become real negative.
  4. Consume less – When the prices of goods and services rise, ie we have inflation, it is a good time to optimize and streamline consumption. If in the periods of low inflation we allowed ourselves to be more “broad-handed”, in the periods of inflation we can no longer afford to buy much and for no reason, because it costs us more.
  5. Make long-term contracts – We block any recurring cost through long-term subscriptions. Here we are talking about costs that we have anyway, not new costs.

How do we profit from inflation?

  1. We become producers
    When you have a fixed income (salary), there are little chances to counteract inflation. Any increase in revenue will come with a significant delay over inflation. If you get your income from freelancing or a business, you have the freedom to raise prices and take advantage of inflation.Inflation essentially means that there is too much money on the market compared to the amount of goods and services available. When you position yourself on the side of the producer, you are actually positioning yourself on the winning side of the barricade.
  2. Invest in shares of companies that profit from inflation
    In general, stocks are positively influenced by inflation, given that most listed companies can raise prices with the devaluation of money.However, inflation can affect the value of companies such as those with fixed incomes (subscription-based incomes such as telecom or utility companies) or those with excessive indebtedness.The companies that could benefit from inflation are either those that benefit directly from rising interest rates (banks), or those that have the flexibility to raise prices: energy, food, consumer goods, etc.
  3. Real estate
    Real estate in general tends to keep up or even exceed inflation. In addition, the owner of real estate for rent has the opportunity to protect himself from inflation by increasing the rent.
  4. Commodities and precious metals
    Gold is traditionally an asset that protects us against inflation (long-term and very long-term), tending to appreciate in times of inflation. However, we must know that in the short and medium term, gold is not required to follow inflation (but only in the long term).You can invest directly in physical gold or in financial instruments that have gold as their underlying asset.Commodities are generally appreciated during inflationary periods. They are very sensitive to inflation. You can most easily invest in commodities either by buying a commodity ETF (synthetic replication) or by buying shares of commodity producers.
  5. Invest in stock indices
    Moderate inflation will favor stocks in general. Too high inflation can affect them in the short term (the reasons are multiple – many companies cannot instantly pass on to consumers rising raw material costs + indebted companies are affected by rising interest rates + higher interest rates mean lower stock valuations).In the medium and long term, stocks are generally a very good protection against inflation, having, historically (the US market in the last 100 years), a significantly positive net inflation return of approx. 7% (7% + inflation).

Conclusion

Finally, we must remember that all the above actions and instruments can protect us from inflation theoretically, but the economy is a living organism and the appreciation or depreciation of various assets are influenced by many other factors besides inflation: economic growth, demand, psychological, demographic or social factors etc.

A prudent approach, a diversified allocation of assets and a constant focus on value creation will often position us as winners, regardless of market conditions.

An educated mind that constantly learns and constantly tests will have the ability to adapt to any market conditions and will thrive in the long run.

 

How to effectively protect yourself from investment risks?

By Smart money, , , ,

Risk/Reward

 

Every time we think about the idea of making investments, the first thing that automatically comes to mind is the notion of risks.

This way of thinking is typical for the field of investments and is much less present in our normal, everyday life.

Or not…?

How present is the concept of “risk” in our lives?

Obviously, certain risks normally exist for us no matter what we do, only we don’t think about them all the time and we don’t worry too much.

Because they are quite small, and most of the time they are even EXTREMELY small.

For example, how many times do you happen to climb the stairs and fear that you might stumble and break a leg? Or how many times do you walk down the street with fear of having a serious accident?

Probably quite rare…

And yet, such accidents happen, because we hear about them many times and we even see them on TV.

However, they are very rare (thankfully!), So it would be abnormal to live our lives in constant fear of them, always thinking about these risks and everything that could happen.

In terms of investments, however, the way of thinking is exactly the REVERSE!

Every time we are interested in a certain investment, we must analyze very carefully the situations in which things could go exactly the opposite of how we hope.

What would happen in those cases, how we would react to an adverse scenario, how much we could lose – all this must be part of our plan from the beginning.

For the simple reason that sometimes these investment risks do occur, no matter how carefully and inspiringly our initial plan was made.

Therefore, the question we need to ask ourselves is not “IF” but, rather, “WHEN” the risks associated with each investment will occur.

It is very important to find out the answer to the question “HOW MUCH” can we lose if those risks occur. Because depending on this answer we know how to plan and manage our investment correctly from the beginning.

In any investment, the main concern related to risks is that, in case they occur and we have losses, they should be as limited as possible.

Because all investors, absolutely ALL, face these investment risks and therefore sometimes incur losses.

Even the famous Warren Buffett, probably the biggest investor of all time, constantly in the top of the richest people in the world, reported a significant loss a few years ago as a result of his investment in Tesco.

What is interesting is that, although in absolute terms this loss seems huge (being several hundred million dollars), in fact it represents only about 0.2% of the net value of the company run by Buffett (Berkshire Hathaway).

In fact, over the last 50 years, Berkshire Hathaway has once lost 2%, with the rest being less than 1% of its net worth. These impressive results confirm that the winning strategy is to keep the risks to a low level, and therefore the potential losses.

How can you effectively protect yourself from risk?

Self-knowledge and study are the most important elements when it comes to investing.

If you understand how you react to risks and potential losses, it will be much easier for you to build a portfolio that fits your risk profile and helps you achieve good long-term results.

Here are 4 things you should always think about BEFORE making a certain investment, so as not to expose yourself to too much risk:

1. How much can you afford to lose?

How much money do you have available for these investments? And, most importantly, how many of them could you lose without significantly affecting your portfolio (or even your standard of living)?

In addition to answering these questions, you need to think about whether you are comfortable with the fact that you will make those amounts unavailable for a certain period of time, specific to each investment.

2. What is your time frame?

The time frame for which you intend to invest is directly related to those risks that you are willing to accept.

The longer you invest for the longer term, the more chances you have of recovering from any declines, so you could take, at least theoretically, higher risks.

On the other hand, as you get closer to your goal (eg financial independence), you need to prepare your portfolio properly so that you decrease the total level of risk you take.

3. How well do you know the investment you want to make?

The main risk of an investment is the investor himself. Or, as Warren Buffett says, “Risk exists when you don’t know what you’re doing.”

So, before you embark on a particular investment, get seriously informed and try to really understand how that investment works.

What are the main risks? What might not be going well? What are the positive scenarios and what are the negative ones?

And, most importantly, what will YOU do in each of these scenarios?

Once you find the answers to these questions, it will be much easier for you to make a concrete plan, which you can implement when the situation demands it.

4. How do you deal with these risks emotionally?

Your emotional ability to cope with change, unforeseen and potentially dangerous situations is very important.

If riskier investments stress you out and affect your daily life, you should probably turn to lower risk instruments.

Even if it is said that high profits are usually brought by investments with higher risks, you should know that there are enough profitable options to invest with medium or even low risks, so that, in the long run, you do not end up ruining your life and the health.

IN CONCLUSION, you can reduce the risks of your investments by investing:

– in a diversified portfolio, with investments that you understand

– which is adapted to your risk profile

– long-term and very long-term

– investing regularly, amounts with which you are comfortable.

This way you will be able to build an investment plan to help you get good profits, in conditions of limited risks.

How to invest: 5 basic tips for beginner investors in stocks

By Smart money, , , , , ,

Investments for beginners

The development of technology has increasingly paved the way for ordinary people to global financial markets. But easy access for individual investors to international markets comes with the need to be educated about them and to understand the risks they take.

1. Do your homework

Once you have decided on which platform you want to invest, you have to do your homework. Investing means more than choosing a few random shares, with the hope that everything will go well on its own. A familiar example would be that when you buy a house you do not choose one at random from advertisements, but you will go to visit it. And to determine if it has a fair price, you look at the neighborhood, the real estate market in general and then you make a decision.

Similarly, before you start investing in stocks or any other asset class, you need to research the market to understand what you are investing in. Read about each asset and invest only when you feel comfortable that you can make a well-informed decision.

Thanks to the internet, nowadays it is easy to access information about listed companies. You can see what their income and history are, you can read their news and recommendations for investors. Sector or market information or even political news is also important – for example, we can now see how airlines, even the best performing ones, are affected by Covid-19 travel restrictions or how incentive packages economically affects markets. Being up to date with things that happen in the media helps you better understand the evolutions of stocks and trends in the markets.

2. Define your financial goals

Before you invest your money, you need to have a clear idea of what you want to achieve and how you will do it. You need to understand your personal goals as an investor. Do you plan to invest in the long term (10 years for example) or in the short term? What types of investments will help you achieve your goals? What are you ready to risk?

Investors should be encouraged to define an investment strategy that suits their needs, including their risk attitude. To mitigate risk, they should diversify their portfolio, adopt a long-term attitude and invest only in financial instruments with which they are familiar and for which they understand the risks they take.

3. Invest the money you don’t need in the next five years

Risk appetite should always be linked to investment objectives. Evaluate your current financial situation to understand if you can take the risk and always invest with money you will not need in the next five years. Never invest more than you can afford to lose!
You need to have a long enough time horizon for the investments you make to avoid market fluctuations. If you have an amount at your disposal, but you know that you will need this capital in the next 12 months, then the recommendation is to invest in a less volatile asset class, such as bonds.

Over time, stock markets have provided excellent returns to long-term investors. For example, since the establishment of the S&P 500 index (stock index composed of the top 500 American companies) in 1926, it has increased by an average of 10% annually. This is a much higher return than those generated by other assets, such as government bonds. You can also start investing in shares with a relatively small amount of money using a commission-free platform, as commissions can affect your profit margins.

One of the factors that discourages people from investing online is cost. The idea is still widespread that you need a lot of money to start investing. Moreover, equity investments are often perceived as an extremely complex process, involving technical knowledge and attracting expensive commissions. This is no longer the case. A number of online investment platforms, conduct transactions with shares without commissions, as well as fractional shares – you can actually buy a part of a share, a percentage of it, expressed in dollars. This offers the opportunity to invest $ 50 in high-value stocks, such as those of Amazon (which trades at about $ 3,000 per share), Tesla (over $ 700) or Alphabet (Google) – whose shares would cost about $ 2,000 a piece.

4. Practice before you start investing

Start with small amounts of money or practice with a virtual demo account, while learning the markets and defining your strategy.
Demo accounts of several online platforms allow you to practice without risk. Every user who registers receives access to a demo account, credited with virtual money, so that they can practice their strategies, learning to work with the platform before investing with real money.

5. Diversify your portfolio

Diversification is a risk management strategy and the proverb “don’t put all your eggs in one basket” explains the concept very well. In other words, invest in different assets or market shares to limit your exposure to a certain class of assets or financial instruments.
The purpose of diversification is not to achieve very high returns, but to manage risks. Think about what it would have been like if you had invested all your savings in the shares of an airline company just before the pandemic, which made travel difficult. You don’t want to be completely dependent on the performance of a single company or a single sector, maybe even the economy of a single country or continent.

Coinbase International – Buy and sell cryptocurrency. Send money internationally for free

By Smart money, , , , , , ,

Coinbase International

Coinbase started in 2012 with the radical idea that anyone, anywhere, should be able to easily and securely send and receive Bitcoin. Today, they offer a trusted and easy-to-use platform for accessing the broader cryptoeconomy.

Coinbase have approximately 43 million verified users, 7,000 institutions, and 115,000 ecosystem partners in over 100 countries that easily and securely invest, spend, save, earn, and use crypto.

You can now send money to any user with a Coinbase account around the world using XRP or USDC. By using cryptocurrencies that are optimized for cross-border transmission, you can send and receive money virtually instantly by sending those cryptocurrencies and having the recipient convert them into local currency. There’s zero fee for sending to other Coinbase users and a nominal on-chain network fee for sending outside of Coinbase.

In fact, you can send any cryptocurrency supported by Coinbase to another Coinbase user or to an account outside of Coinbase. XRP and USDC may be better suited for smaller international money transfers due to their faster processing and lower transaction fees. USDC also has the added advantage of being exchangeable for one US dollar, rather than being volatile in price like other cryptocurrencies.

What you’ll need to open a Coinbase account:

– be at least 18 years old
– a government-issued photo ID (they don’t accept passport cards)
– a computer or smartphone connected to the internet
– a phone number connected to your smartphone (they will send SMS text messages)
– the latest version of your browser, or the latest Coinbase App version. If you’re using the Coinbase app, make sure your phone’s operating system is up-to-date.
Coinbase doesn’t charge a fee to create or maintain your Coinbase account.

How to send money internationally with Coinbase?

1. Sign in to your Coinbase account, or create one.
2. Confirm your recipient can convert XRP or USDC into local currency.
3. Convert your desired funds into XRP or USDC. 6
4. Access your XRP or USDC wallet and select send.
5. Enter the amount you’d like to send and the target wallet or email address.

With Coinbase you can create your cryptocurrency portfolio

Coinbase has a variety of features that make it one of the best place to start trading:

– Manage your portfolio: Buy and sell popular digital currencies, keep track of them in the one place.
– Recurring buys: Invest in cryptocurrency slowly over time by scheduling buys daily, weekly, or monthly.
– Vault protection: For added security, store your funds in a vault with time delayed withdrawals.
– Mobile apps: Stay on top of the markets with the Coinbase app for Android or iOS.

The “secret” to reaching the first 1000, 10000 and 100000 EUR / USD

By Smart money, , , , ,

Compound-interest

Most people get stuck until they reach the first 1, followed by a few zeros of  earned /saved/invested money, and they stay in the “start” area for the rest of their lives, taking it over and over again from the beginning.

This is why most people do not become financially independent and do not truly achieve financial prosperity.

The first 1000 EUR invoiced from the new business;
The first 10,000 EUR invested on the stock exchange;
The first EUR 100,000 in the personal portfolio;
The first studio for rent;
First salary / bonus etc. of EUR 3000 (the example is relevant, even if it does not start with 1)

The effort to reach the first 1, followed by a few zeros, is enormous and many give up along the way. What they don’t know is that after you hit a 1 followed by a few zeros (2,3,4 etc.), the rest of the zeros are much easier to reach.

After 10 years of struggling to reach a portfolio of 100,000 EUR, most likely up to 200,000 EUR could take you much less, up to 300,000 EUR less and so on.

The same applies to investments. You can constantly invest 200 EUR per month, without seeing a big difference in the portfolio, until, at a certain moment, the compound interest intervenes and your portfolio grows rapidly.

 

The graphic result is more than clear:

Calculator_initial

200 EUR invested monthly for 20 years at 10% interest

The result is:

Calculation result

Result after 20 years

The graph “speaks” for itself:

Balance after 20 years

Balance after 20 years

So don’t get lost on the road, but continue at maximum acceleration, until you reach that goal of 1 followed by a few zeros.

After that point, things will become easier, automated, routine.

So the “secret” is that there is no secret: all that is needed is discipline, patience and time.

What to do: pay off the credit or invest for passive income?

By Smart money, , , , , , ,

Pay off the credit or invest for passive income?

I saved a certain amount of money and I manage to keep saving month by month, what do I do? Do I pay off my credit or invest to generate higher income in the future?

Probably many of you have at least one mortgage loan and/or one or more consumer loans (if you read this article) and at the same time you have started to accumulate some financial reserves and may have thought or even started to put the money to work. In this context, you may also think about the fact that interest rates may rise, a crisis may occur at any time and at the same time you can see the good profits that have been made and are made from real estate investments, stock exchange, cryptocurrencies and business.

In all this context, it is normal for the answer to the question to pay the credit or invest the money to be complex, with many variables and uncertainties, but also so important. Basically the answer can guide your financial strategy for several years.

Let’s begin!

Before I should ask myself if I pay the credit or invest, there are some things we have to check:

  • If there are debts from credit cards and overdrafts with interest rates above 15% -20%, those should be paid before we think about investments;
  • Consumer debt, car etc. – we should focus on them and pay them in advance before investing;
  • We fail to save constantly – focus first on building this habit;
  • Reserve fund to cover living costs for a period of 6-12 months.

Before you have all the above checked, you should not even think about starting investing.

Any consumer credit used for the acquisition of liabilities should be paid as a priority. Real estate and investment loans (those used to purchase assets) are the ones we can doubt whether we will pay them in advance or not.

We will talk specifically about real estate loans, to simplify and make the analysis relevant, but we can have the same analysis process in the case of a non-real estate investment loan.Well, now the question that remains is: Do I pay the real estate loan or do I use my future reserves and savings for investments?

Economically speaking

From an economic point of view, we will compare the actual effective interest rate of the loan with the expected net return on investments.

For example, we have an interest of 5% on the mortgage loan and

a  return estimated by us of 10% of the investment in shares (historical average yield)

or

we find an apartment at a very good price and with a rent yield of 8%

or

bonds with 9% interest

and so on….

So we have on one hand a 5% safe interest vs. a yield estimate of 10% or 8% or 9%.The decision may seem obvious – at such a yield differential, in 20-25 years you pay the property 2 times.

But the decision is simple just at first sight and it becomes more complex when we go deep. Why? Because the interest rate on credit is safe (if it is 5%, it is 5% no matter what I do) while the return on investments is always an estimate.

Estimate because:

  • The stock market may no longer perform in the next 10 years as in the past or you catch a very weak interval;
  • The yield on the rental property may decrease, or it may not be at all, unless you have a tenant or you find a structural problem of the construction;
  • The issuer of the bond can go bankrupt and you lose all the money.

There are risks that you must take into account to adjust the returns on investments with the percentage of risk. Professionals always calculate their adjusted return on an investment. The calculation is very complex and has many variables. But for the sake of simplification we can estimate a differential for the degree of risk. For example: -1.5% for a very good real estate, -2.5% for small and medium-sized companies bonds and -3% for blue chips shares.Thus, we now have a comparison between + 5% credit payment and (10% – 3% = 7%) for shares; (8% -1.5% = 6.5%) for real estate and (9% -2.5% = 6.5%) for bonds.

Now it’s a little clearer. We know that up to a loan interest rate of 6.5% or 7% we can invest without problems, but if the interest exceeds these levels it becomes more profitable to pay the credit.

Of course, the calculation is relevant depending on how well we made our estimate of future profits.

Many investors and business owners maintain their long-term loans, knowing that they can generate higher long-term returns with the same amount of money. This is the case of many smaller or larger entrepreneurs, it is the case of those who invest professionally or even those who invest passively in the long term.

Obviously, a solution would be to make more risky and / or more active investments that can bring higher returns, but in this case you really should know what you are doing.

Important is to make your calculations as well as you can, because, after all, nobody knows the future.

Psychologically

The need for survival/safety is lower (and stronger) on Maslow’s pyramid than aspirational needs. From here comes a degree of stress that will make you quite conservative in investments when you have unpaid loans.

Emotions are not good in investments.

To make a decision:

  • Do your calculations – see economic analysis above;
  • Calculate your risk profile;
  • What decision would make you unable to sleep at night?;
  • How would you feel about paying off your debts? But what if you didn’t pay them?
  • How would you feel if you invested in passive income? But what if you didn’t invest?
  • How would you feel if you paid your credit with 5% interest and the stock would have a 50% yield that year, which you would not benefit from? But if you did not pay your credit and invest in the stock market, and the stock market would fall by 50% that year? Which of these 2 options would most disturb you?

When choosing whether to pay your credit or invest/accumulate reserves you must take into account both the economical and psychological aspects. Both are important, but more important are the psychological ones, because they have the power to sabotage you.

Finally, if you are still not cleared how to proceed, you can choose the middle way and use the amounts saved according to the formula: Invest = (10 – Credit interest rate) and with the rest pay the credit. That is, if the credit interest is 4% and you save 1000 EUR per month, you pay in advance (or you set aside to pay in advance) 400 EUR and you invest 600 EUR.

Simple, right?

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Mintos loan originator Kuki.pl misses the payment of the buyback guarantee?

By Smart money, , , ,

Update:

As promised, I return with the response received from Mintos support. It arrived promptly, the next day, and you can read it below:

“Dans (Mintos)

Oct 18, 12:36 EEST

Hi Cristian,
thank you for your message.

After checking I found that the loan you are referring to had been closed by the 16.10.2019. 
It is listed in the finished Investments as well. The amount of days the loan is late, however, will keep increasing. As of now it is 63 days late, but that doesen`t change the fact that the loan had been in accordance to the buy-back guarantee on the 16.10.2019.

I hope that cleared it up and you may have a pleasant day
Let us know if you have any other questions.

Regards,
Dans”
Now, given the age of the platform, the volume of transfers and the experience with them so far, I will credit them, but there are still some doubts:
– if a loan was paid on 16.10.2019, why did it appear within the platform as late on 17.10.2019 (at night !!!) as it results from the image below, and only on 18.10.2019 as ” Finished prematurely “?
– if indeed the loan was paid on 16.10.2019, it means that there is a problem of the platform with the updating and/or displaying of data, which is worrying considering that we all make investment decisions in accordance with the information displayed.
As a personal opinion, for a while I will stay away from kuki.pl.
If you have questions or can explain these differences, feel free to comment on this post.

End of update

No money

Tonight, when I checked the Mintos platform, I had the unpleasant surprise to see that there are loans on my portfolio at Mintos that are more than 60 days late, given that I only invest in loans with buyback guarantee.I checked on the platform and noticed the following loan:

Kuki.pl buyback default

Kuki.pl buyback default

I am aware that this is only a one day late loan, but after the “experience” with Eurocent and Aforti I am very attentive to everything that happens within the platform.

I sent a message to Mintos about this topic, I will update this post when I get a response from them.

However, until then, I liquidated the entire loan portfolio from kuki.pl on the secondary market. I hope this is not another case like Eurocent.

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