He CIS barometer, Center for Sociological Research, has been showing for years how concern about economic issues and pensions has been gradually growing among Spaniards, but Are these concerns founded?
There are many times that we have heard that the current pension system is unsustainable and that it must be reformed, but let us not limit ourselves solely to this argument as a reason for savings.
We all have dreams, hopes and reasons to invest. There will be parents who want to take their children to good universities, free spirits who want to go around the world and visit the most inhospitable corners, lovers of speed who long to have a powerful car with a large displacement...
All dreams are valid and equally important, and in most cases, money is needed to carry them out.
Once we have set our objective, made a budget and its subsequent savings plan and marked our time horizon (period during which we want to maintain the investment), we are left with the most important thing: putting our money to work for us.
So today, in this post, we will see two of the most used tools for this: investment funds and pension plans.
Investment funds
You've probably heard of the investment funds, one of the products most used by investors to carry out investments in the financial marketss.
We are going to try to give them a face and eyes since they can be great allies when it comes to achieving those objectives that we have set for ourselves.
An investment fund is a financial instrument which brings together the economic contributions of the different investors (hereinafter participants) and invests them following a previously defined strategy known to all participants. The different strategies What investment funds can follow will be what categorizes them in one way or another.
Advantages of investment funds
The main advantage they offer us is the diversification. If we were the ones who independently managed our savings, we would not be able to diversify them to the same extent as an investment fund, since we would be investing such small amounts of money in each financial product (whether shares, fixed income securities...) that commissions would eliminate any profitability obtained.
However, when pooling an investment fund the savings of a large number of participants It allows invest in different financial products much higher quantities, so the Commissions do not eliminate profitability.
It is worth remembering that Investment funds They are managed by financial professionals and supervised by different regulators (in Spain by the National Securities Market Commission), which also provides extra security. trust and security when choosing this investment vehicle.
We might think that it is not us who can do “cherry picking”, that is to say, choose the companies or bonds in which we want to invest It's a disadvantage since human beings have the bad habit of thinking that oneself will always do better than others.
Trust the experts
But, just as when our car breaks down we take it to a workshop or when we are sick we go to a doctor, trust our savings and investments to experts is, in most cases, the best decision.
Another very interesting aspect is that we can find investment funds for all risk profiles and for all time horizons.
There are, among others, variable income funds (they mainly invest in stocks), fixed income (mainly in bonds), mixed funds, guaranteed funds (they guarantee the conservation of the invested capital at a certain date), free investment funds…
Pension plans
If our biggest concern is saving for retirement and supplementing our public pension, pension plans They are the financial product designed for this.
It's a financial product which is largely similar to investment funds and, just as was the case with these, there are pension plans with different typologies investment according to their risk and time horizon and are regulated and managed by professionals.
Types of pension plans
Although it has two very significant differences with these thatand you have to keep in mind:
- Tax deferral: the contribution annual maximum It currently stands at €2,000 and the contribution made annually can be deducted from personal income tax. In this way the investor You are not taxed on the contributions at the time you make them; it will be when you redeem them during your retirement that you will have to pay taxes on the income you obtain from them.
In a investment fund there is no contribution limit, although it does not exist deferral or relief tax of any kind.
- Plan rescue: the rescue of a pension plan can only be carried out when retirement has been accessed or in the face of some extraordinary contingencies, including long-term unemployment, permanent work incapacity, great dependency or death.
He rescue of an investment fund It can be carried out whenever the participant wishes, and no particular casuistry is necessary.
When and how?
Are two of the most repeated questions when it comes to savings, and the answer to the first one is very simple. Sooner. As the saying goes, “don't put off until tomorrow what you can do today.”
He time That money is working for us will be a determining factor when it comes to achieving the financial goals that we have noticed.
The key question is how and that is where each investor has to know themselves, know your financial goals, his Patrimonial situation, his temporal horizon and his risk aversion. This way you will be able to find the financial product that best suits your needs and possibilities in terms of risk and time horizon.
So, before choosing a financial product, analyze your situation, your needs and your objectives. This way, everything will be easier.
If you want to train as a professional in this field, the Master in Financial Management, Accounting and Management Control of EIP will equip you with the necessary skills to lead comprehensive fiscal-financial management of the companies.
