Savings and investment: the importance of making the most of our money | It’s you, not your money

The pandemic, restrictions and home confinement have led us to necessarily change our routines and consumption habits, although we continue to drag certain behaviors: deposits continue to be the financial product par excellence for many Spaniards.

At the end of March, the National Institute of Statistics published the savings figures for Spanish households in 2020, a figure that has skyrocketed, reaching highs since 1999. Specifically, during the past year, Spanish households increased their savings by more than 60,000 million euros, up to a total of 108,844 million. This means that their savings rate in 2020 stood at 14.8% of their disposable income -8.5 points higher than in 2019-, after their disposable income has fallen by 3.3%, to 739,585 million and that consumer spending has been reduced by 12%, to 628,198 million euros.

Where is that going saving? The figures also show that there are certain things that do not change. Every so often we read headlines that talk about the records that are being set by deposits and checking accounts and the reality is that, except for small setbacks in specific months, the money that goes into this type of vehicle does not stop growing.

In December 2018, households and SFLSH (non-profit institutions serving households) exceeded, for the first time, the barrier of 800,000 million euros in deposits. The latest figures for 2021, corresponding to the month of February, place savings on deposits at 919,000 million euros.

Is it really convenient for us to deposit our money on products that are painful and profitable? Are we aware of the risk we are taking by not making our money profitable?

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The current scenario of short guys in which we have been installed for years makes this type of product unattractive for the investor. According to data from the Bank of Spain, the profitability in February of demand deposits was 0.01% in Spain and 0.12% in the case of deposits over 2 years, figures that make with the over time we lose purchasing power by not exceeding the inflation.

Why shouldn’t you put money ‘under the mattress’?

Many times we think that leaving our money standing is the safest thing to do. And the reason is found, in part, in the distrust and fear of the markets that the financial crisis left in the retina of many savers. In addition, to this we must add the scarce financial culture that we have in Spain and that makes us think that it is best not to risk with the money of the future.

Belén Alarcón, partner and director of wealth advice at Abante, reminds us that the greatest risk faced by the saver it is not to overcome inflation and lose purchasing power over the years. For this reason, he emphasizes that the minimum that any investor should aspire, in order not to lose money, is to equalize inflation, plus the taxes on the profitability that the asset in which we are going to invest gives us.

Here, in addition, we must bear in mind that the emotions they also play an important role: “We have brain structures dating back millions of years designed to think in the long term and visualize the future in the third person,” explains Alarcón, and this hurts us enormously when it comes to drawing up a financial plan and invest for the future.

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A financial plan to make savings profitable

To make our money profitable and obtain the final amount we expected, the first step is to do an exercise of financial planning in which we define our objectives – what we want to invest for – and we are clear about our investment time horizon. This will help us define our risk profile and draw, with the help of a financial advisor, which is the investment strategy that best suits our needs and plans.

This exercise will help us commit to our future because it will allow us to see different scenarios and what options we have. Is it enough for me to be conservative to meet my objectives and obtain the final profitability I need? What level of risk can I take? Seeing with numbers what final capital we could obtain according to the level of risk we assume will help us to be aware that the decisions we make in the present have consequences in the future. And if we draw up a plan and are well advised, we can change our investment strategy and adapt it as we need or change our plans.

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