All news
"Why should I take risky stocks when the risk-free return is higher?"
Here we are waiting for the Central Bank meeting and wondering whether the Central Bank will raise interest rates by 1% or by 2% right away.
Some rub their hands, prepare to open a deposit, hope for a new generous deposit offer from the bank and laugh at those who are sad, because several months ago they already “locked” their deposit with a 20% yield.
However, both investors laughed at the bond investors who locked in the yield, but OFZs went into negative values, as did the investors.
But investors and bond enthusiasts alike laugh at stock investors. Because the RISK-FREE yield is higher than the dividends, and even these dividends can be cancelled and the stock price can fall by half. There is only risk, but the Deposit and OFZ are a guarantee if there is no risk. (light sarcasm)
The so-called "risk-free" return is in most cases lower than that of stocks. (2) Remember that the "risk-free" return is not fixed forever.
Earlier this month, Moscow Exchange reported that individuals alone had invested about 70 billion rubles in the fund (three money market funds LQDT, SBMM, and AKMM accounted for ⅘ of these investments, or 42%, 21%, and 16%, respectively). If the conditional forward yield of Sberbank $SBER is ~14% of the current price and there is no guarantee of dividends, then the simple and straightforward VIM Liquidity $LQDT fund offers much more. Is the choice obvious? - no.
It has been written 100,500 times that companies absorb inflation, so I won't repeat myself. This time we'll talk about growth.
If I had to compare the yield on a 20% deposit and the amazing conditional yield of Sberbank, I would leave it at 10%. The difference remains about 10%.
The question of whether Sber will be able to grow by +10% next year remains open. Let's consider two options:
(1) Inflation is falling.
This means that stock prices are rising, for example when interest rates are falling and the economy is picking up → This means it's time to buy stocks.
The question is how soon will Sber show +10%. Will I have time to send money before the deposit runs out? In 2023, there were four months when Sber added more than 10% per month, and March 2023 added 27.5% (excluding dividends).
(2) Inflation is not falling.
With deposits, we simply receive money on top and can rest assured that our deposit amount will not go into the negative while we wait for interest payments. Few people pay attention to real purchasing power (measured after interest and inflation). This is normal.
If you buy dividend stocks, you get a small stake in a business that absorbs inflation very well (I researched this in the summer using Sber as an example).
I'm sure there are many of my readers who know exactly when to sell their money market funds and when to buy stocks at the bottom. As far as the author knows, he regularly buys dividend stocks.
If you invest over several years, stocks are the best investment.
If you're talking about "saving money to buy something expensive in the near future," then a savings fund or money market fund is probably a better fit.
The notional "risk-free" rate of return is not fixed forever and is weakened by inflation. What will inflation be in a year? Who knows? However, a stake in an inflation-absorbing business brings the author money in the form of dividends, just as renting a notional studio brings dividends in the form of rent payments.
But the profitability of a conventional studio in St. Petersburg is 5-8% of the invested capital (more time + repairs, but not now). And at current prices, good shares have a yield of 8-15%.
Why buy risky stocks if the risk-free rate is higher? - I don't know why it is necessary. I buy it myself because I need protection from inflation for several years and this also creates an additional source of income for myself.
#inflation #dividends #contribution
---
I am a private investor, the author of the Telegram channel "Richard Happy", free courses on bonds and the auto-following strategy "Russian Market" (available in T-Investments and BCS). The written content is not an individual investment recommendation.