In recent months, the external environment seems to offer a more than opportune moment to invest our surplus capital, perhaps in profitable business ideas, or by resorting to the various options offered by the financial system.
Julio César de la Rocha, director of the Center for Banking, Finance and Capital Markets (FinLab) at the University of Lima, shares with us 10 alternatives that we should consider if we seek to generate profitability for those capital gains that we made in the last months.
Investment Ideas To Earn More Profit
Let’s take a look at the ideas to invest in to get more profit are:
1. Mutual Funds
They are instruments managed by Fund Administrators (SAF), which invest the capital of the participants in such as time deposits, sovereign bonds, or company shares. 90% of the funds are concentrated in fixed income instruments (sovereign bonds and time deposits), while 10% is divided between mixed-income and variable income funds (stocks).
2. Savings in AFP without Pension Purposes
Voluntary savings without social security purposes in Pension Fund Administrators (AFPs) offer three alternatives:
- Fund 1 (fixed income)
- Fund 2 (mixed-income)
- Fund 3 (variable income)
In this sense, it is possible to choose both the same AFP in which one has their pension contributions and another and even choose a different fund than the one has for retirement. The advantage over other products is that the AFP funds are more diversified and invest around 40% abroad.
3. Life Insurance With Savings
Life insurance guarantees the family’s lifestyle against the early loss of the father or mother. But now that financial products have become more sophisticated, insurers not only offer this benefit with shorter-term contracts but have also added the savings component to their products, offering the possibility of recovering, in some cases, up to the 100% of the sum of the premiums. It is estimated that, of 770,000 insured families, 90% choose insurance with the savings component.
4. Real Estate Market
For long-term investors, the real estate sector seems as solid as cement. Since 2006, after the real estate boom, the price of properties has increased by up to 300%, so those who bought properties for for-profit purposes made more money than in the stock market. It is always recommended to hire specialist mortgage brokers to acquire a property through a mortgage loan, and if possible to rent the property, you can hire so that the credit is paid from the income obtained from the rent.
5. Stock Market
To invest in the stock market there are two ways. On the one hand, buying shares at a low price to sell them in the short term at a higher price. On the other hand, invest in the long term, hoping to recover the investment in periods of 10 to 15 years. In this second scenario, it is worth highlighting the profitability calculation recorded by the Lima Stock Exchange between 1992 and 2012, considered as the boom years, in which the Lima market registered profitability of 1,800%.
6. Private Banking
There is a select group among banking clients: private banking. For this segment, in which the capital of the contributor generally amounts to more than one million dollars, the banks offer a network of experts spread all over the world, who, in addition to working on exclusive financial reports, advise the client in making products financial, from time deposits, mutual funds, to bonds, preferred stocks, derivatives (gold, euros or yen), among other options.
7. Term Deposits
Contrary to what many might have recommended up to a year ago, time deposits have become a product with attractive rates of return. Months ago, if you asked an expert where to put your money, the almost automatic answer from the experts was to do it in mutual funds. However, in a period of high uncertainty, time deposits, whose interest rates have not shown any decline in the last 12 months, have become a profitable option.
8. Derivatives Market
The derivative is a financial vehicle that gives the investor access to markets such as currencies (mainly euros and yen), commodities (oil, gas, gold, or silver), and stock indices (Nasdaq, IBEX35, DAX, or Nikkei 2215). The foreign exchange market is the least volatile and it is in this market that currency exchange rates are traded. For those who want to take a greater risk and seek greater profitability, there are commodities. In this area, the most traded assets are gold and oil.
9. Sovereign Bonds
Fixed-income alternatives include bonds (medium-term) and commercial papers (short-term). The securities issued by the countries, such as Sovereign Bonds and Treasury Bills, are alternatives in the fixed income segment, which give the possibility of accessing a previously set profitability, provided that the securities are not sold before their maturity, since their prices also tend to vary, but their volatility is low. In the case of Peruvian debt, this is among the most profitable.
10. Personal Loans
More than an investment alternative, the personal loan is a financing alternative. However, if you can access personal loans at preferential rates, ranging between 11% and 15%, personal credit can become an attractive option to generate profitability, but as long as that capital is allocated to profitable businesses that project a return of more than 20% per year. Otherwise, it will be more debt than an investment.