- 28
- May
- 2024
Finding out ways to preserve and increase one's wealth is a permanent concern worldwide, but it is an acute need in Lebanon due to the ongoing multidimensional crisis that has been afflicting the country for over four years. This issue is a persistent challenge, especially as cash is the number one ruler, and its financial management has proven to be more complex than bank deposits. The objective at this point is to identify some optimal investment strategies, bearing in mind that there is a trade-off between return and risk.
For Non-Risks Takers
Every financial transaction involves risk. Even those who hide their cash under a mattress run the risk of seeing their purchasing power decrease due to inflation, if not a robbery. Nevertheless, there are appropriate investment options for those who are risk-averse.
1- A typical example of a risk-free asset is a government bond (or sovereign debt) issued by a financially stable and politically secure country. The most well-known and sought-after ones are Swiss and US Treasury bonds, or more generally, bonds issued by countries with AAA ratings. The catch is that their output is generally low. However, currently, yields are on the higher end, around 5% for US Treasury bonds. They can be acquired through a broker or investment bank. Some Lebanese banks provide these bonds, but they remain offshore investments, not subject to the country risk (Lebanon in this case) and can be redeemed anywhere. One can also purchase bonds from well-established countries, which are more profitable, but riskier.
2- Investing in high-quality corporate bonds is another viable option. These bonds, which are private debts, offer predetermined yields. To diversify and mitigate risk, one can opt for investment funds that pool together various bonds, such as the Vanguard Short-Term Investment-Grade Fund.
3- Gold is as another popular option, often perceived as a safe haven, despite its lack of interest or dividend returns. The primary strategy revolves around banking on its potential future appreciation, which tends to be the prevailing trend despite intermittent fluctuations. There is limited supply alongside consistent demand from central banks, industries and individuals. Virtually all kinds of investment advice recommend gold as part of a diversified portfolio.
4- Real estate is also an investment option with promising returns. But which country should top the list? In Lebanon, property prices still hover at 50% to 60% of their pre-crisis value, especially outside Beirut. This paves the way for lucrative deals. Walid Moussa, President of the Syndicate of Real Estate Agents, notes that the commercial real estate market (including warehousing, retail, restaurants and supermarkets), is on the rise.
Elsewhere, enticing offers are being advertised in Dubai, Athens and more. However, before committing, it's crucial to ensure the credibility of the companies behind these offers. Prior research on price averages in the respective cities is also crucial. Overall, international reports recommend cities like London, Bucharest and Seoul. Of course, this doesn't mean that one should do the legwork in person, but rather rely on a trustworthy real estate agent or on a real estate-indexed investment fund.
5- Some cryptocurrencies offer promising long-term investment prospects, although their value can fluctuate unpredictably. Among the various options, Bitcoin and Ethereum are considered the safest bets, particularly as they gained approval from US financial authorities. Economist Saifedean Ammous, former professor at LAU and leading expert, highlights Bitcoin's scarcity, which is rooted in its complex production. Binance serves as the largest platform for crypto transactions, while local brokers may offer funds, known as ETFs, linked to Bitcoin and Ethereum.
6- Beirut Stock Exchange: Our stock market is in a comatose state, with values and transactions denominated in lollars. Solidere stands out as a promising long-term investment, boasting substantial real estate assets. Faysal Barbir, Director at I&C Bank, attributes the recent surge in Solidere's stock to speculation surrounding a potential decision by the Lebanese Central Bank regarding lollar deposits.
7- International Stocks: Usually, it is wise to invest in companies’ stocks with a low price-to-earnings ratio, as this often points to undervaluation. Other golden rules of stock investment include diversification (across sectors and countries), focusing on the medium to long term, conducting thorough research and finally, emulating prominent global investors like Warren Buffett.
General Guidelines
So, how does one pinpoint the best investment? It depends on many factors: the investor's long-time plan, risk tolerance, age and goals. Generally, younger investors can take on more risk than older ones, as they have more time to recover from potential financial losses.
Diversification is a strategy followed by all professionals to mitigate risk. By spreading investments across various asset types with inversely correlated values, a decline in one asset's value can be offset by the appreciation of another.
Additionally, many of the aforementioned investments can be made with cash deposits. However, it's important to note that any resale (stocks, bonds, etc.) will also be paid out in cash, not via bank transfer; otherwise, it would be considered as money laundering.
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