How to profitably invest personal funds. U.S. Experience
In Russia, people rarely invest their money in securities (just 7% according to VCIOM). The most reliable investments are (1) real estate (46%) and bank deposits (29%).
Let's take a look at (2) similar statistics in the United States. Putting your money in a "stocking stuffer" is an unpopular idea among Americans. Far more often, funds are invested in financial and non-financial assets. The most popular investment vehicles are stocks (35%), real estate (25%) and retirement savings (22%).
Why is there such a strong investing culture in the States, and is buying securities commonplace? We find out in this article.
Why Americans invest.
Debt management. Paying off loans is the new American dream. Brokers help potential investors close loans with high interest rates while setting aside small amounts for the future.
Budget Management. Financial stability is about earning more than you spend and saving for unexpected expenses. The goal of the strategy is to have a spare 15% of your budget to invest.
Retirement savings. Regularly replenish retirement accounts and multiply funds through investments
Americans use different instruments to achieve these goals.
Stocks are the most popular investment vehicle in the U.S.
One out of every two Americans uses stock market instruments to grow their wealth. This is not an exaggeration - according to a Gallop survey (3), in 2016 52% of the U.S. population had assets in the form of securities. In Russia, this figure is incomparably lower, at just 7%.
The U.S. stock market is vast, transparent, and well regulated. Lots of ordinary people (students, housewives, teachers) invest in this instrument. This makes the stock market healthier: stocks circulate well and can be sold quickly. Beginning investors set themselves a long-term financial goal and entrust their funds to a personal broker.
Interest on bank deposits in American banks is ridiculously low, and investments at the stock market steadily bring (4) 5-15% a year - that is, investing in stocks is really profitable.
Of course, stock trading involves risk. If assets are mismanaged or the market crashes, you can lose your money. The risk payoff has been the highest average return on stocks in the past 90 years, at 11.5% (5). That's the highest of any type of investment in the U.S. market. Conservative investment strategies and the services of financial advisers and personal brokers help reduce risk.
"Investing is the right thing to do!" This idea is constantly being broadcast to a wide audience of U.S. residents. Stock market reports appear on TV stations as often as the weather forecast. The media tells personal stories of people who made a fortune buying and selling securities. After the collapse of the market in 2008 there is (6) some distrust of stocks on the part of the younger audience but on the whole this investment instrument is a confident leader.
Real estate investing is now the second most popular investment in the U.S. and has a good chance of moving into the leading position. Surveys have shown (7) that real estate is what Americans consider the most stable investment vehicle.
To begin investing in real estate, it has historically taken a very significant amount of money to accumulate. People built their homes and invested in them for years, eventually obtaining a full-fledged non-financial asset.But in recent years, a new way of investing has emerged - real estate crowdfunding (8), which has lowered the bar for entering the market to just $1,000. This has the potential to revolutionize the investment market. An investor acts through special sites - crowdfunding platforms, and can either become a creditor of the property, receiving a fixed income of 8-9% per annum (9), or buy a share of the property and receive income from renting and reselling it.
In Russia, receiving income from funds invested in a crowdfunding project is not provided - users simply finance an idea they like in exchange for a non-monetary reward (for example, a product on preorder). In the U.S., however, crowdfunding is a full-fledged, albeit high-risk, investment tool. Investors receive a financial return - for example, interest in the case of investments under a loan agreement, or dividends on their shares. Crowdfunding is a relatively new tool, but it has attracted steady interest among Americans. A study of the crowdfunding industry found (10) that 58% of Americans are willing to invest in 2-3 startups each year.
Everyone wants a carefree old age - Americans and Russians alike - so interest in investing in retirement savings is consistently high. In addition to the basic state pension in the U.S. ($1200-1400 in 2018 (11), the exact amount depends on the state), there are several voluntary retirement plans.
To be continued...