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FINANZAS | 8.02.2020

Three investment strategies to increase your savings

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There are many reasons to start saving — from redecorating to changing your car or to maintaining your standard of living during retirement — but what are the keys to doing it successfully?

Many savers only focus on increasing their income and saving a percentage of it over time. However, there is a third step that is just as important as the previous two: growing those savings.

Achieving a positive return on accumulated money or, in other words, a return that at least exceeds inflation is the starting point for any savings strategy. In this respect, Ismael García, Investment Manager & Fund Selector at MAPFRE Asset Management points out that “The best time to invest was yesterday. The sooner you start, the longer compound interest will work for you.”

Four key points for any investor

Ismael García, recently declared the best fund selector in Spain, points out that there are four recommendations that apply to all types of investors:

  1. Make recurring subscriptions. This reduces the pressure of finding the best time on the market and reduces potential loss aversion.
  2. This increases the weight of socially responsible investments. More and more companies will benefit from efforts to contribute to a more sustainable world. This is backed by a study recently conducted by three of the world’s most prestigious business schools (HEC Paris, MIT Sloan and the Toulouse School of Economics), which concludes that investors are willing to pay more for companies with a positive social impact.
  3. Discipline and perseverance. Frequent changes in criteria have proven to be detrimental to long-term profitability. Therefore, experts recommend establishing a savings system and sticking to the time horizon.
  4. Leave it to the experts. In the same way that we seek advice for legal matters, it is important to get the help of a good financial advisor who understands your needs and can help you meet your goals.

Once these premises are clear, the next step is to ask yourself: what am I saving for? When you have a clear objective in mind, you can move on to defining a time horizon and determining which instruments are best suited to achieve this objective. 

Conservative investors have the most difficulty

Inversor conservador

The traditional composition of an asset portfolio for a conservative investor does not appear to be the most suitable for the coming years, according to managers at MAPFRE Asset Management. With negative interest rates and inflation above 1 percent, betting on deposits implies a loss of purchasing value. With regard to bonds, Ismael García says “Fixed income will not provide the returns it used to and serious doubts have been cast on its ability to absorb volatility in variable income markets given the very low returns.”

The solution for conservative investors? Extending the time horizon, i.e. longer-term investing in order to increase the volatility level of their portfolio. In this respect, MAPFRE Asset Management experts recommend global variable income funds that invest in quality companies with a large international presence. This will be the driver of the portfolio’s profitability, which will be based on a defensive position in fixed income. Therefore, “you have to invest in funds that would be less affected by a possible rate hike (either monetary or short-term funds),” explains Ismael García. Finally, experts recommend completing the portfolio with flexible fixed income funds, where the manager selects the most attractive distribution by asset type and geographic area to “provide the portfolio with an extra return on profitability, especially in areas or assets where there is room for further rate reduction.”

 

  • Variable income: 20–25 percent
  • Short-term fixed income: 50 percent
  • Fixed income: 30–35 percent
  • Target volatility: Less than 5 percent
  • Time horizon: Minimum 18 months

Moderate investors: more tools at their fingertips

Inversor moderado

With a longer time horizon (between three and five years), you can afford to increase the weight of variable income. Therefore, for this type of profile, MAPFRE Asset Management recommends “a small exposure to emerging markets because of their growing importance in the global economic growth pie, especially the variable income of Asian countries, due to the ability of companies focused on domestic business to increase profits.”

 

  • Variable income: 40–45 percent
  • Short-term fixed income: 30 percent
  • Fixed income: 25–30 percent
  • Target volatility: Less than 10 percent
  • Time horizon: Minimum 48 months

Aggressive investors should choose a long time horizon to overcome volatility

 

Inversor atrevido

Ten years is more than enough time for investment to overcome the short-term volatility associated with variable income and obtain the best long-term returns. In this respect, managers recommend that aggressive investors select “a portfolio that is fully invested in variable income, that is well diversified by sector, company type and that has a special focus on assessments. We recommend investing in small- and mid-cap companies, increased exposure to emerging markets, and investment in global funds with leading companies in their portfolios.”

  • Variable income: 100 percent
  • Target volatility: Not applicable
  • Time horizon: Minimum 96 months