Interest rates on savings accounts are falling unstoppably. Interest rates above 5 per cent are overwhelmingly a thing of the past, with below 4 per cent now the norm. And further declines will come as the CBN lowers interest rates. Those who want to appreciate their savings with a decent return need to look to the investment world. With a sensible approach and an experienced adviser on your side, it need not be a gamble. The key is to choose the right strategy. Take a look at the three most common approaches.

Czechs had a record CZK 1,020 billion invested in mutual funds alone at the end of the first quarter, with assets there growing by almost 10 per cent in the first three months of this year. Czechs are increasingly coming to the taste of investments. This is a good thing - we are catching up with our western neighbours, where investing is taken for granted even among the general population. Countries such as the USA, Canada and the UK, but also Germany and Sweden, clearly show that investing is not just for an "elite club" of seasoned Wall Street traders with millions in their accounts. Nowadays, anyone can make money without exaggeration. And one can easily start with just a few hundred crowns a month left over the necessary reserve.

But how to find your way around all those funds, stocks, bonds or commodities? The key is to know yourself. Especially these three basic things:
1) What we want to achieve by investing.
2) How long we want the money to appreciate, or when we need it.
3) How we are able to tolerate risk and fluctuations in the markets.

Different combinations of the above factors may also come into play. For example, you may have a higher tolerance for risk, but if you know you will need part of your savings in three years to buy a car, it doesn't make sense to invest that money in stocks. In fact, if the market fluctuates, you could withdraw it at a loss. Stocks need a longer time horizon.

That is why we always go through a detailed investment questionnaire together before we start investing. Once completed, it will show which types of investments and in what proportions are suitable for the client and which are better to leave out at the moment. Below, we look at the three most common investment approaches and examples of assets in which money can appreciate. Leaving aside the various speculative investments and trading, we will focus on the truly pure investment approaches for the longer term.

Conservative approach:
Time horizon: at least 3 years
Risk level (1-10): 1-3
Example of possible portfolio composition: 15% money market instruments, 60% bonds, 15% real estate funds, 10% equities
Expected return: 1-2% p.a. above inflation

A conservative investor prefers safety of his capital and stability to high returns. This type of investor seeks to minimize risk and often invests in instruments that are considered stable and less volatile. Conservative investors have a lower tolerance for risk and prefer the certainty of a regular, albeit lower, return. Their investment strategy is based on capital protection, especially against inflation. This style is suitable for those who will want to use their money over a relatively short period of time and/or do not want to endure large fluctuations in the value of their investment. Typically, a conservative strategy is chosen by seniors, for example, who know they will want to draw an annuity from the funds soon. They may transfer, for example, money from a closed retirement savings plan into these investments, knowing that there will be no dramatic fluctuations.

Typical assets in which a conservative investor invests include government bonds, highly rated corporate bonds, dividend stocks of large and stable companies, money market funds or time deposits. The conservative investor also often invests in mutual funds that target stable, low-risk returns by combining the above assets.

A balanced approach
Time horizon: minimum 5 years
Risk rating (1-10): 3-6
Example of possible portfolio composition: 0% money market instruments, 40% bonds, 20% real estate funds, 40% equities
Expected return: 2-4% p.a. above inflation

The balanced or also moderate investor seeks a balance between risk and return. This type of investor is willing to accept some risk to achieve higher returns than they would get from conservative investments, but still prefers a degree of safety. Moderate investors often spread their investments across different asset classes to diversify risk and maximise potential returns.

Typical assets in a moderate investor's portfolio include a combination of stocks and bonds. Portfolios may also include real estate funds, commingled mutual funds, balanced funds and index funds. The moderate investor often invests in stocks of companies with long-term growth potential and in bonds with higher yields but lower risks than stocks.

A dynamic approach:
Time horizon: minimum 8 years
Risk rating (1-10): 6-10
Example of possible portfolio composition: 0% money market instruments, 10% bonds, 10% real estate funds, 80% equities
Expected return: 5% or more per annum above inflation

A dynamic or "aggressive" investor is willing to take higher risk in exchange for potentially high returns. This type of investor is not afraid of volatility and often invests in dynamic and growth sectors that promise significant growth. Investors tend to be younger, have a long investment horizon and a higher tolerance for risk.

Typical assets for an aggressive investor include technology startup stocks, speculative stocks, stocks of small and medium-sized companies with high growth potential, commodities, and possibly cryptocurrencies. These investors may also invest in venture capital and funds focused on emerging markets. Such investments offer high growth potential, but also a higher risk that the value of the investment will fluctuate by tens of percent over time.
However, long-term investors need not worry about such short-term fluctuations, as historically markets have always been shown to recover from downturns and reach new highs. All it takes is time and patience.

Accesses can be changed or mixed
Neither approach is generally better than the other, but each is useful in different situations. The above-mentioned investment questionnaire provides a reliable indication of which way to go. Nor is it written anywhere that there is an insurmountable line between these approaches. They can change and complement each other over time.
The basic rule of thumb for investing is so-called diversification, i.e. the principle of not putting everything on one card, for example in the form of shares in only one particular company. The money invested should be spread appropriately. And this can also apply to the above approaches. For example, a smaller part of the funds can earn in the dynamic component and a larger part can appreciate with low risk in the conservative component.

Everyone will find their own
And approaches also change over time. For example, younger clients, who often have an investment horizon of several decades ahead of them, may invest very dynamically in the early decades, then move their appreciating funds into the balanced and later conservative components of their investment portfolio.
Therefore, in our case, we not only recommend suitable investment instruments to our clients at the beginning of their investment journey, but we also stay in touch with them and adjust their portfolios as necessary as their life situation, goals and plans change.
It is important to take the first step into the world of investments. We're happy to help you not to misstep, but to step towards a richer life and let your money earn a reasonable return.