What could Romanians invest now to protect their economies? Is it time to act as soon as possible or should be expected until after May 18 elections? There are questions, for the public Hotnews, the chief economist of a top commercial bank, in the context in which the exceeding of the threshold of 5 lei for the euro and the warnings regarding an economic crisis worry the population.
Depending on the financial situation of each, the long-term plans and the risk tolerance, decisions can be divided, explains, in a discussion with Hotnews, the chief economist of BRD, Florian Libocor.
Is it a good time to buy a home?
If there is a solid advance and stable income, people take advantage of the offers on the real estate market, says, in a discussion with Hotnews, Florian Libocor, who also talks about a scenario that should not be ignored:
“If you have a solid advance and stable income, you can take advantage of the existing offers on the real estate market, where the interest rates on fixed interest mortgage loans have decreased. On the other hand, the scenario should not be ignored that the depreciation of the leu can continue, which could affect the living costs and the rates on the loans.
If the decision to make a home credit, the banker's recommendation is for the loan to be in the currency in which the revenues are collected. With a loan in lei, the currency risk is eliminated, having predictable rates if the revenues are in lei.
“However, the interest can be higher compared to those in euros, but it offers stability. The credit in euros comes with interest that can be lower, but you are exposed to the foreign risk. If the lion continues to depreciate, the value in lei of the credit rate in euros will increase.
Thus, if your income is in lei, a loan in lei with fixed interest for as long as possible can be a safe option in the current context. If you have income in euros, you can consider a credit in euros, but you have to be aware of the associated risks, ”says Libocor.
Savings of 50,000 lei. Should be changed in euros or Swiss francs or do you invest otherwise?
With 50,000 lei, the choice between foreign currency exchange and other forms of investment depends on the objectives of each, the time horizon and risk tolerance believes our interlocutor.
“The purchase of currency can aim to ensure the protection against the depreciation of the leu especially now, when the euro rate has exceeded the psychological threshold of 5 lei/euro,” says the chief economist of BRD.
But, warns Libocor, the following must be taken into account:
- The money stays, but it does not produce efficiency only to the extent that the depreciation continues (being accompanied by a depreciation of the purchasing power of the depreciated currency that can cancel, even exceed, the profit from the favorable course difference),
- Conversion can bring losses if the lion strengthens in the future,
- There is a variable difficult to predict, in other words, “good moment”, when is that moment? If, however, a currency is chosen, it is recommended to be chosen a liquid and known such as the euro.
However, there are other types of alternative investments, such as:
- Bank deposits or government securities, whose yield is not taxed. They are tools without currency risk, with returns of about 5 – 7% annually, which offers partial inflation protection.
- Mutual funds or ETFs. These tools provide potentially higher yields (8–10% or over), but at risk. It ensures an international diversification but requires minimal knowledge and a medium -term exposure horizon.
- Gold. It is a good asset in the context of inflation and uncertainty that can be bought physically or by ETFs (eg Gold ETF). This asset only produces income if its price increases but retains the value.
Do you have to act as soon as possible or wait until after May 18 elections?
Libocor says that, given the current volatility, the adoption of immediate measures to protect the economies is a prudent decision, recommending to consult a financial counselor.
“One of the first decisions would be that of diversifying investments by distributing economies in several types of assets to reduce the risk. Then, there is the possibility to choose between currencies (which involves an exchange rate), gold (considered a refuge in periods of economic uncertainty) and real estate (properties can provide stability and protection against inflation).
We also have the so-called emergency funds, which involve maintaining a reserve of liquidity equivalent to 3-6 months of expenses, for possible unforeseen situations.
Last but not least, there is the possibility to make investments in mutual funds or ETFs, which offer diversification but must be adapted to the profile of each risk.
The wait for the result of the elections on May 18 can provide a clearer image on the country's economic direction, ”says the chief economist of the BRD.
He also sent simulations of some investment scenarios:
| Investment type | Initial amount (lei) | Estimated yield (%) | Estimated value after 3 years (lei) | ||
| State titles (6.5%) | 20000 | 6.50% | 24158.99 | ||
| Bonds / Global ETF (8%) | 20000 | 8.00% | 25194.24 | ||
| EURO (without yield, +3% foreign currency) | 10000 | 3.00% | 10927.27 | ||
| Gold (5%estimated yield) | 5000 | 5.00% | 5788.13 | ||
| Actions (10%estimated yield) | 5000 | 10.00% | 6655 | ||
