PERSONAL FINANCE AND EFFECTIVE MONEY MANAGEMENT
8 most common investment methods in the SEE region
1. Government bonds
Government bonds represent a loan from investors to a state institution or government entity, generating income through interest (bond coupons) over a defined period, typically ranging from one to 30 years. Coupons are usually paid once or twice a year. Due to this stable cash flow, bonds are also known as fixed-income securities. Government bonds are considered practically risk-free, as they are backed by the full faith and credit of the government.
The downside of this type of investment is that, precisely because of the security it offers, it does not generate high returns compared to other investment types. If your investment portfolio consists of 100% government bonds (instead of a mix of stocks and bonds), it will be significantly harder to achieve long-term or retirement goals.
Best suited for: conservative, risk-averse investors. Fixed income and lower volatility make them popular among investors close to retirement or already retired.
Where to buy government bonds: bonds can be purchased by placing an order through a broker or an authorized bank.
2. Individual stocks
A stock represents ownership in a company. Stocks offer the highest potential return on investment, while also exposing your capital to the highest level of risk. These cautionary words are not meant to discourage stock investing. On the contrary, they are meant to emphasize the importance of diversification achieved by investing in a range of stocks through mutual funds, rather than buying individual stocks.
Best suited for: investors with a well-diversified portfolio who are willing to take on additional risk and actively trade stocks. To reduce risk when investing in individual stocks, a good rule is to limit exposure to any single stock to a maximum of 10% of the total portfolio.
Where to buy stocks: the easiest and most cost-effective way is through an online broker.
3. Mutual funds
A mutual fund is a form of collective investment that pools money from a large number of investors. By investing in a fund, an investor becomes a holder of fund units. The fund’s assets are invested in stocks, bonds, and other financial instruments.
Mutual funds offer investors a cost-effective way to diversify, i.e., to spread investments across multiple assets in order to reduce individual investment risk.
Best suited for: investors who want higher returns without actively trading stocks themselves.
Where to buy fund units: mutual fund units can be purchased through asset management companies or authorized distributors.
4. Endowment life insurance
Endowment life insurance is a combination of insurance and long-term savings. In developed countries, almost every adult typically owns at least one life insurance product.
Given that insurance companies in Serbia predominantly invest in securities issued by the Republic of Serbia (over 90%), endowment life insurance is considered one of the safest forms of long-term savings.
Best suited for: investors seeking safe investments who do not wish to consider risk but want to secure a stable future for their loved ones.
Where to buy life insurance: through authorized insurance agents and intermediaries or directly from insurance companies.
5. Unit-linked life insurance
Unit-linked insurance is an ideal combination of life insurance and savings through investment in investment funds.
In developed countries, these products dominate the life insurance market. Although relatively new in Serbia, unit-linked insurance has become equal in importance to traditional endowment life insurance. Due to its characteristics, primarily the active return on invested funds, it is increasingly gaining market share.
Like endowment insurance, unit-linked products require regular premium payments. Part of the premium covers insurance risk (guaranteed sum insured), while the remaining part is invested in fund units. This structure enables higher returns compared to traditional products.
Best suited for: investors who want to secure their family’s future while achieving higher returns than traditional endowment insurance.
Where to buy unit-linked insurance: through authorized insurance agents or directly from insurance companies such as Wiener Städtische Insurance.
6. Private pension funds
Any person under the age of 70 can become a member of a private pension fund, regardless of employment status. The majority of members in Serbia are employees whose employers make contributions on their behalf. The state provides tax incentives, exempting contributions up to a certain amount per employee from taxes and mandatory contributions. Contributions are voluntary, as is the payment frequency.
The earliest age for withdrawing funds from private pension funds in Serbia is 58. Up to 30% of the accumulated funds can be withdrawn as a lump sum, while the rest is paid out through programmed withdrawals.
Best suited for: employers and unions who want to provide additional retirement income for their employees and members.
Where to buy pension funds: through registered pension fund management companies.
7. Alternative investments
If you are not investing in stocks, bonds, funds, or insurance products, you can opt for alternative investments. These include cryptocurrencies, gold, silver, oil, antiques, and similar assets.
Alternative investments became popular in the early 21st century when both stock and bond investors experienced significant losses in portfolio value. In contrast, gold prices, for example, rose significantly in 2011 and remained relatively stable until August 2020. However, this is an exception, as alternative markets are highly volatile. It should also be noted that legal regulations in this area are still not fully defined in many markets.
Best suited for: investors seeking to move away from traditional investments and hedge against fluctuations in stock and bond markets.
Where to buy alternative investments: some online brokers and platforms offer access to certain alternatives, but most investments are available only through private asset management companies.
8. Real estate
Traditional real estate investing involves purchasing property and later selling it for profit, or owning property and generating rental income as a form of relatively stable cash flow. There are several additional global real estate investment models, but they are still underdeveloped in our local economic practice.
Best suited for: investors who already have a healthy investment portfolio and are seeking further diversification or are willing to take on higher risk for higher returns. Real estate investments are highly illiquid, so investors should avoid committing funds that may be needed in the short term.
