Navigating financial instruments: What investors should know
In an interview with RaiMagazine, the bank's newsletter, Ms. Venera Morina, Market Sales Chapter Lead at our bank, guides us through the various financial instruments available and discusses how our bank can support clients in kickstarting their investment journeys.
What are financial instruments and what are the main types offered by Raiffeisen Bank in Kosovo?
Financial instruments are tools used in financial markets to manage capital, invest, and hedge against risks. They represent an agreement between two or more parties, where each party has specific rights and obligations. These instruments can include a wide range of options, starting from those that represent ownership to those that represent debt. Essentially, financial instruments are contracts that have monetary value and can be traded in financial markets. They can be used to generate income, grow capital, diversify an investment portfolio, and hedge against market fluctuations. Their value can depend on a company's performance, interest rate fluctuations, commodity prices, or other economic factors. Financial instruments are essential to the functioning of financial markets because they provide mechanisms to transfer risks, provide liquidity, and support economic development by facilitating the movement of capital. For investors, understanding financial instruments and how they work is key to making informed decisions and achieving financial objectives. Raiffeisen Bank offers these types of instruments for trading: Common Stocks, ETFs, RCM Funds, Kosovo Bonds and Guaranteed Capital Certificates.
What are the benefits and risks of investing in stocks,mutual funds, and ETFs?
Investing in stocks, mutual funds, and ETFs offers a wide range of benefits and risks, which are important to consider when making investment decisions.
When talking about common stocks, we can say that some of the benefits of trading them are: higher potential for profits and opportunities for significant capital growth; some stocks offer regular income through dividends; Investors can choose specific stocks according to their preferences.
Meanwhile, the risks must also be assessed against thebenefits:
- Volatility: prices can change significantly in short periods.
- Risk of loss: There is a possibility of losing capital in the event of poor company performance.
- Requires knowledge: Requires constant analysis and attention
Mutual Funds: The main benefit of mutual funds is diversification, i.e., investing in a broad portfolio that reduces risk. Mutual funds are managed by investment experts, therefore, the client as an investor does not need detailed analysis. Meanwhile, in terms of risks, we can point out that there are higher management fees and commissions, investors have no control over investment choices and the value can fall if the market isfalling.
ETFs (Exchange-Traded Funds) have the following benefits: Diversified
investment, because mutual funds offer a diversified portfolio. They are highly
liquid and are traded like stocks on exchanges during the day. They also have
lower fees than mutual funds.
Meanwhile, in terms of risks for these instruments, we can consider market volatility, because they can fluctuate just like stocks. Also, some ETFs can be quite complex and difficult to understand. So, each option has its own benefits and risks, and the choice should be based on personal investment objectives and risk tolerance
How can an individual start investing through RaiffeisenBank in Kosova?
To better understand the client's profile, we first provide an application form with basic questions. Based on the client's answers, we identify the most suitable financial instruments. After the verification and identification process, we inform the client about the opportunities we offer. If the client decides to proceed, he/she can open an account with our bank, unless he/she is already a client. Depending on the client's requirements, we advise on opening accounts in the appropriate currency at our branches, offer to sign a trading/investment agreement and thus open the client's portfolio with our bank. This verification process is carried out to protect the client from possible losses in the financial markets
How does Raiffeisen Bank help clients choose appropriateinstruments for their financial goals?
Our bank offers a wide range of investment options and it is essential to identify the client's profile through a detailed questionnaire. This process helps us understand the client's level of knowledge and experience in the financial markets. For clients who are new to this field, we recommend starting with investments that offer capital protection, such as Treasury Bills with guaranteed interest or Certificates with guaranteed capital. After a period of six months, when the client has gained experience and is familiar with investments, we offer the opportunity to trade more complex instruments, such as ETFs or common stocks. Another important factor is the age of the clients; older clients prefer safer investments, while younger generations show greater interest in stock trading, because these generations have a higher tolerance for risk, and at the same time aim for higher returns in a shorter time frame.
What are the differences between investing andtraditional saving, and when is it appropriate to choose one over the other?
Traditional investing and saving are two financial strategies with different goals and characteristics: Traditional Savings aims to preserve capital and build a fund for short-term or emergency needs. It has very low risk, because bank deposits are usually insured, however, the return is usually very low. Interest rates are low, but they have very high liquidity, the funds are easily accessible. While the purpose of Investment is to increase capital in the long term by purchasing assets that can increase in value. The risk is higher; the value of investments can change, and capital can be lost. The return is potentially higher, may include capital gains and dividends. However, liquidity may be lower, depending on the type of investment.
When to choose one over the other:
Traditional Saving is suitable when the client has short-term financial needs, seeks security and stability without the risk of losing capital and wants quick access to his/her funds. Investment is suitable when the client aims for capital growth in the long term. When the client is able to tolerate risk and is willing to withstand market fluctuations and, also, when the client has long-term financial objectives, such as retirement or financing children's education, etc. The choice between savings and investments should be based on personal financial goals, taking into account the individual's risk tolerance and time horizon.
[This interview was originally published in June, in the fourth edition of RaiMagazine]