Investing can be your pass to the world of financial independence and long-term prosperity. Regardless of how much you and your family members are making currently, you always have the option of increasing your welfare through investments. This is true for younger couples who need to get high return on their savings ensuring access to quality healthcare and education for their children. This is equally true for more mature people who want to enjoy the best life has to offer. Besides, sooner or later we all start to think about finding a way to continue maintaining the lifestyle that we’ve got used to in the future, even after retirement. Pension benefits are great, but not always sufficient to sustain high enough living standard. And this is exactly the gap that investing has come to fill.
Where to invest?
As a person who has savings to invest, an investor, you can consider various alternatives such as keeping your money “under mattress” or in a “piggy” bank, which basically comes down to the same result – no result, as you earn no return on your “investment”. Not to mention, your saving gets eaten away by inflation. Another option is to take your money to a real bank and place it as a deposit to bear some interest. Unfortunately, interest rates on demand deposits are normally quite low (up to 4% per year), while for time deposits you have to “block” your funds for a certain period of time, the term of the deposit. If you withdraw them before the deposit term expires, you normally lose all interest accrued.
Types of Securities
When an investor seeks balance between return and flexibility, investing in securities can be a good option. In the Armenian securities market you can invest in the following types of securities:
Bonds, or debt securities, differ from stocks, or equity securities, in that they do not represent participation in the capital of the company. Instead, they entitle you to a guaranteed fixed rate income, which is known to you at the time you buy the bonds.
Common stocks, on the contrary, represent ownership right and entitle the holder to participate in the management of the company by providing voting rights, receive dividends, as well as a portion of the Company's property in case of its liquidation. Preferred stocks are considered equity securities with bond-like features, as they do not provide voting rights, but typically entitle the holder to a fixed dividend, before any dividend can be paid out to holders of common stocks.
Bonds are considered to be less risky financial instruments than equity securities. This is especially true of government bonds, which are believed to be virtually zero risk securities. One should note, however, that the lower the risk, the lower the return and expected profitability. The fixed return that you get on a bond can be incomparable with earnings that you may have if a stock you have bought performs well in the market. But equally incomparable with losses that you may incur if one fine day the stock nose dives much below the price you paid for it. So, when making an investment decision you should always weigh your return expectations by your risk tolerance – the extent to which you are prepared to take on risks.
Liquidity is also an important feature of securities. It means that both equities and bonds can be sold at the stock exchange at any time without any material losses. Even if you sell the bond before the redemption date (when the debt represented by the bond is repaid), you will not lose any return accrued for the period you were the bond holder. The more holders of a security, the larger is its market and the easier it will be to sell it, that is why stock exchanges set free float requirements to companies who seek to list their securities and have them traded on the exchange market. The liquidity of a security is also enhanced if it has appointed market makers that provide continuous bid and ask quotations, thus making it easier for the investors to realize their holdings whenever needed.
What to do if you have decided to buy securities
If you feel up to making your first investment, you can explore other sections of our website, take a look at the information materials listed below, or proceed directly to choosing an exchange member company that will provide you with a more in-depth insight and advice on the Armenian securities market.