No matter how reliable securities may seem, investments in them are always associated with risk and no one can guarantee that they will bring income. Nevertheless, on the stock exchange, you can easily get 10-15% profit per year. There are three ways to do this.
The key point for profitability is buying on IIS
A prerequisite for making such a profit is the purchase of securities on the IIA. This enables the investor to take advantage of certain tax benefits, depending on the type of IIA.
It is assumed that during the entire period of validity of the IIA (three years), the investor will invest a maximum of 400 thousand rubles each year, while annually issuing a tax refund of up to 52 thousand rubles (deduction for the contribution). It is the tax incentives that apply to the IIA that will have an impressive impact on the final profitability. To do this, let’s give a simple example:
ETF shares were purchased for 50% of the investment amount, and bonds for another 50%. Between April 2018 and April 2019, ETF stocks rose 19.5%, with bonds yielding 7.5% per annum. If the securities were bought into a regular brokerage account, the total return would be 13.5%. When buying them on the IIA, after the application of the tax incentive, the profitability at the end of the first year would have been at the level of 26.5%.
First strategy: 15% yield on bonds of reliable issuers
The strategy is to buy low-risk bonds on IIA. Such bonds are issued by issuers with high reliability: the Ministry of Finance, the largest Russian companies. For the purchase, it is better to use bonds with a maturity of up to three years, so that the market situation does not interfere with their redemption after the closing of the IIA at par.
The yield on such bonds is 7.5-8% per annum. IIS allows you to additionally receive 13% tax deduction. Buying bonds annually and applying the tax credit will provide an average annual return of 15%.
For example, on IIS-A, which makes it possible to return 13% of the investment amount, we buy bonds of NK Rosneft Region 04, with a coupon yield of 7.9%. Every year we buy the same bonds in the amount of 100 thousand rubles. As a result, the average yield will be 15.5% per annum.
This strategy has several disadvantages:
- in order to enjoy tax benefits, you cannot withdraw money from the IIS;
- the yield on bonds is inversely proportional to the size of the key rate of the Central Bank of the Russian Federation – the higher the rate, the lower the yield on bonds, and vice versa;
- annual replenishment of IMS in the amount of up to 400 thousand rubles;
- exchange and brokerage commission expenses;
- if the bonds are purchased at a higher price than par, then a small loss will be received upon their redemption;
- when buying bonds, the new holder is obliged to pay the old one the accumulated coupon yield, which will be refunded to him at the next coupon payment.
Second strategy: 18% return on high-risk stocks
In this strategy, ETF shares or shares of BIF are used to buy on the IIS. Best suited for a private investor are ETFs with FXRL and shares in the exchange-traded mutual fund SBMX. These are funds based on the Moscow Exchange index.
A good result for such an investment portfolio is its growth at or above the base index.
Over the past 20 years, the growth of the Moscow Exchange index averaged about 15% per year. After the 2008 collapse, the Moscow Exchange index quickly won back its losses and is now in the region at historic highs.
Along with simplicity, this strategy also has disadvantages:
- Buying stocks always carries a high level of risk. Their price is subject to sharp fluctuations, which can be caused by all kinds of crises, economic sanctions, etc.
- Past performance is not a guarantee of future performance. The purchases may coincide with the period of the index correction, which will not bring profit.
- There are management fees charged by ETFs regardless of dynamics.
Third strategy: 16.5% return on index fund stocks and bonds
The strategy is a combination of the two previous investment options. The first half of the investment portfolio is formed from shares of an index unit investment fund based on the Moscow Exchange index, the second half – from low-risk bonds.
This combination provides an optimal balance of profitability and risk, and also allows you to participate in the long-term growth of the stock market, while receiving a guaranteed income from bonds.