Investment literacy that’s worth it – part 2:

With the persistently high rate of inflation, an increasing number of people is becoming interested in investing. However, a lack of investment education and understanding of investment concepts discourages many people, leading them to find their money depreciating in value, especially when left in savings accounts. At best, these accounts offer minimal yields. To address this, we're introducing more terms to expand your investment vocabulary, making it easier and faster to choose suitable investment opportunities.

If you would like to gain a better understanding of financial reserves, principal, or liquidity, we invite you to read our latest article.

Investment horizon

The definition is clear: “An investment horizon is the expected time period over which an investor wants to have cash tied up in a given investment.” It represents a specific timeframe during which you plan to hold the invested money in the investment and expect to achieve the desired yield. The investment horizon is not solely based on the age of the investor but also on their investment objectives.

For instance, a young person may invest to accumulate funds for obtaining a mortgage. In this case, their investment horizon will be determined by the time they plan to deal with the mortgage. On the other hand, an older person might invest to generate passive income or provide for their grandchildren into adulthood, resulting in a longer investment horizon despite their age.

Investments with a duration of less than 5 years correspond to a short-term investment horizon. These may include savings accounts, fixed-term deposits, or P2B investments in short-term loans. For a medium-term investment horizon, investments typically last from about 3 to 10 years, often involving shares or bonds. Lastly, a long-term investment horizon is satisfied primarily by stocks, cryptocurrencies, or investments where investors are willing to weather short-term declines in portfolio value. Such investments are usually planned for 10-20 years.

Volatility

Few things in life have a definite, let alone linear, development. The value of an investment is subject to fluctuations based on the exposure to risk. These fluctuations in the value of investments are called volatility. However, there is no reason to see it as a negative concept. Volatility is not only a threat but also an opportunity. Just as we take the risk of a fall in value, there is the possibility of higher-than-expected growth. Therefore, it’s essential to consider your personal risk profile before choosing an investment. Of course, a more volatile (riskier) investment usually yields a higher return.

Participating in loans secured by real estate offers a predetermined fixed yield paid out monthly. As a result, they exhibit much lower volatility compared to equities, which fluctuate in value.

What does LTV stand for?

LTV stands for “loan to value” or “loan to value ratio” in English. It simply represents the ratio of the loan amount to the value of the secured property. It serves as a reserve cushion for the lender in case the borrower is unable to repay their debt. While it is not in the borrower’s interest to have to use the secured property, it acts as formal security and confirms the debtor’s creditworthiness, serving as an incentive for the borrower to repay the debt honestly.

At RONDA INVEST, we take pride in securing the projects we lend to with LTVs below 70%, and it is not uncommon for LTVs to be much lower, sometimes even below 50%. The lower the LTV value stated for our investment opportunities, the lower the risk.