Getting it right on money: where to invest in? | The Express Tribune

0
2


ISLAMABAD:

The double whammy of soaring inflation driven by the commodity super cycle and successive interest rate hikes has sent investors panicking who want to save their eroding investment.

With the dollar soaring on a daily basis, not only the rupee is losing the purchasing power, but it raises the question if savings are even worth it?

Here are some tips on what asset classes to invest in, if one must, and why.

One, invest in dollar-denominated assets that will lead to savings in the long term (eg solar system and hybrid car).

If you have been planning to buy something that will give you peace of mind, cut your future expenses or help increase your productivity, do it now. There is no point waiting for a deal on a comfortable mattress, chair, or a new printer, if you need it.

However, you can always prioritise the assets that lead to long-term savings – say, a solar system, for example.

A modest 5kva battery-less system with net metering should be sufficient to cover electricity bills for a mid-sized house and save you from any soaring costs of power.

Similarly, a small fuel-efficient or a reputed hybrid car could lead to extensive long-term savings if your daily commute is more than 50 km. In case of a solar system or a hybrid car, the investment is equivalent to buying dollars – but with far better utility and return on investment (ROI).

Two, don’t invest in gold unless the transaction costs are kept in check.

Gold is often hailed as a hedge against inflation as when the US dollar or any other currency loses its value, gold becomes more expensive. However, this is true only if the supply of gold is restricted.

With the abundance of gold exchange-traded funds (ETFs) and active gold mining by numerous corporations, the investment in gold is not the best idea.

If you invest in gold, buy 24 carat gold bars, and carefully check the buyback policy. Jewellery is a no-no as there are so many margins involved that it is not worth it – unless you aim to retain it for decades.

Three, invest only in branded real estate with possession.

When it comes to real estate, everyone says location, location, and location. Though true, yet the dynamics of realty in Pakistan is driven by many factors.

As a majority of investors are expatriate Pakistanis or businessmen (usually from Khyber-Pakhtunkhwa or central Punjab), it is the branded property that counts.

If it is a CDA sector or DHA scheme, then it is gold – provided possession is available at hand. Never invest in files or lesser-known brands as the liquidity of your investment could be severely affected.

Also keep track of your real estate investments and never be afraid of an early exit (even at a loss) if you have made a mistake.

Four, invest in Behbood Certificates, if eligible.

Behbood Savings Certificates and Pensioners’ Benefit Accounts offered by the National Savings Organisation to widows and pensioners are as good as it gets.

With no withholding tax deduction at source, a return of over 14%, and a proposed fixed tax of 5%, they can easily beat the best banking product available.

Moreover, the coupon rate of Behbood is guaranteed to only go upwards and lower rates are only meant for the new bond holders. However, they still can’t beat the current inflation rate unless the discount rate is revised significantly upwards.

Five, tax planning (don’t invest in mutual funds).

If you are a salaried individual, tax planning is a key to reduce your tax expenses. From July 2022, investing in money market mutual funds offers no tax credits, so there is no point in paying an exorbitant administrative fee for funds that are mediocrely managed.

Instead plan your purchases of movable assets and real estate between July and November to adjust the withholding taxes already paid with your income tax, which was deducted at source.

Six, invest in dividend-paying stocks that are fuelled by government subsidies.

Investing in stocks is a tricky science and is not meant for everyone. However, as a rule of thumb, one should try to avoid stocks of state-owned enterprises and go for stocks of those companies that regularly pay dividend and enjoy massive subsidies from the government.

This means stocks of companies in the agriculture sector are the way to go if they pay dividend on time. An ordinary person should not opt for leverage or invest in businesses that they don’t understand.

In a nutshell, there is no clear answer when it comes to deciding which asset class to invest in and it depends on many factors such as the risk attitude and personal needs – to mention a few.

If you are a conservative investor, then invest in solar and fixed deposit (or Behbood Certificates). If you are a balanced investor, you can add a few dividend-paying stocks such as from the fertiliser industry.

If you are an aggressive and active investor, then you can invest in all the above while keeping a keen eye on how your investments and portfolio as a whole are performing.

The writer is a Cambridge graduate and is working as a strategy consultant

 

Published in The Express Tribune, July 4th, 2022.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.

LEAVE A REPLY

Please enter your comment!
Please enter your name here