Personal Finance: Savings and Investment
In recent years, banks, insurance companies and other financial institutions have been directing their attention more and more to the man in the street, offering an ever-growing multitude of financial products and investment opportunities for those whose earnings exceed their spending and thus are looking to make the most out of their savings. In fact, many of these investment opportunities have been tailor-made to the needs of the small investor who, on the one hand is looking to receive a maximum return on his/her savings, but on the other hand would like to avoid taking unnecessary risks at the same time having easy access to his/her money at short notice i.e. maintaining high liquidity.
Indeed, what personal finance consultants and other experts in the field do, when trying to establish the most suitable savings and investment opportunities for their clients, is to work out a customer profile in terms of these three factors: return, risk and liquidity. For those of us who do not have such professional support, we need to establish for ourselves just how much of each we are looking for given the obvious condition that generally speaking, as return goes up so does the risk. Added to this (although some experts include this as part of the return factor) are possible tax deductions, some of them directly related to the liquidity of the product.
Pension Plans (Planes de pensiones)
A pension pan, as the name would suggest, is a long-term investment plan whose objective is to provide the investor with sums of money in the form of capital or income on retiring (also invalidity or death and in exceptional cases longer-term unemployment). They are more often than not used as a complement to the state pensions which many feel will be insufficient to maintain them after retirement. The investor can make regular or periodic contributions to these plans throughout his/her working life. There are a myriad of such products on the market at the moment and they are popular largely because of the tax deductions they allow in your annual tax return. The greatest drawback, however, is the lack of liquidity of these products as you cannot normally get hold of the sums invested until retirement or disability and exceptionally, in times of long-term unemployment. They are suitable therefore for people with a medium to above-medium income who are prepared to make moderate contributions throughout their working life without the foreseeable need to withdraw their money at short notice. The more aggressive pension funds invest a higher proportion in shares which are more volatile whereas the more conservative ones invest more heavily in government debt which is considered to be risk free.