Thursday, November 15, 2007

My First Investment

A year ago, on November 12, 2006, I purchased my first mutual fund. At the time, only about 300,000 Russians out of 140 mln population were buyers of stocks and mutual funds. My family and friends were suspicious about stock market, but I was interested in mutual funds and determined to buy one. I’d been contemplating for half a year. It was so difficult to choose the right company and the right fund! But finally, I picked an index fund of the subsidiary of my bank. One day after classes, when I was alone, I braced myself and went to the nearest office, which happened to be five minutes’ walk away from my dormitory. It was Friday, about 7 p.m., and already dark outside. I was nervous and scared. It seemed like I was doing something shameful, as I didn’t want anybody see me and ask me where I was headed. I probably just didn’t want anyone try to discourage me.

People in Moscow usually buy mutual funds in big, expensive offices in downtown. The small office near my dormitory, which is situated very, very far from the center of the city, usually processes loans and savings accounts. So, it turned out I was the first person in the district who had an idea to buy mutual funds there. The manager was able to sell me funds, but she didn’t know exactly how to do it. Luckily, she didn’t send me to another office or ask me to come some other time. The manager couldn’t call the main office to consult, because it had closed at 5 p.m. She used her cell phone to call someone, and then called somebody else. She was the only manager in the office. A man lined up after me and stared at me intensely, wondering why I took so much time. I think I spent there more than half an hour, nearing an hour. But when I came out of the office and breathed in frosty air, I felt a surge of excitement and pride.

It seems incredible that a whole year has passed, and my first investment has grown by 27.92%. Now, looking back, I laugh at myself. Buying funds is not a big deal anymore. It’s now a simple operation like depositing money in a savings account. I’ve even learned to do it online. Now I feel I can be more open about my investments in real life, because I’ve grown more confident about them. I’ve gotten a lot of experience and knowledge during this year.

Sunday, November 11, 2007

Inflation Is Rising

Since 1995 the inflation rate in Russia has been steadily decreasing. Last year it was 9%, down from 100+ % in 1995. I am young, so I don’t really remember the times when the inflation was increasing. I thought in 2007 it would be somewhere about 8% or less.

But this year everything changed. It all began in September and October, when some products suddenly became more expensive, for example milk, plant oil and cheese. I think I must mention that in Russia food is a major factor when estimating the inflation, because it is still the largest expense of an average household. I guess this price hike is a part of a global trend, as this year the price of wheat skyrocketed everywhere, and dairy rose in price in Europe. Anyway, the result is the inflation rate here is already about 9%, so by the end of the year it will probably be above 10%.

For me there’s nothing scary in this news, even though I spend a lot on food. This year I finally started eating more healthily, reduced the consumption of processed food, and my class schedule allows me to take more meals at home, rather than eat out. And I recommenced bringing my lunch to school. So I hope my food bill will even be shorter than it used to be. The price of non-food goods seems to be the same. I also know that the majority of my savings earn no less than 7%, and my mutual funds’ performance is way above the inflation. What I’m interested in is if our analogue of Fed rate will be raised. It currently stands at 10%. If it gets raised, the savings account rates will probably rise too. Then I will finally set up a savings account (seriously, keeping money on one’s Visa is a little weird) and lock these attractive rates. I think of this pike as a temporary deviation, after which the downward tendency will resume.

I admit that I’m probably overly optimistic about the future. Actually, I barely remember the crisis of 1998, when Russia went bankrupt and the ruble plummeted. Since then the Russian economy has been rising. So I remember only the relatively good times, and thus I’m inclined to believe that everything will be okay. When I heard the opinion of my acquaintances and media, I understood I am an egoist. While I thought of my financial benefit, the others worried about the future of the whole nation. It was clear that everyone thought about the hyperinflation of the low nineties and the tumult of 1998. My peers, who hardly remember it, were reminded of the hard times by their parents. I heard opinions like “Russia is going bankrupt”, or “It’s a crisis like the one in 1998.” There is no ground for such statements now. It shows that people get used to relative well-being, and it’s scary for them when something unexpected happens. Especially if a history of a particular market economy is so short. We’ll see.

October Net Worth

This month I put aside the extra money I’d got from a small October work. Like in the previous month the stocks continued to pick up, and the ruble rose a little higher against the dollar. To achieve my goal of 100K rubles I now need $4,050 instead of $4,000. At the end of October I had $3,516.

I think I have too much cash, and I’m eager to put a part of it in my mutual funds. However, I am not disposed to do it right now, because Russian stock market makes new highs every day, and stocks seem expensive. I want to wait for a correction.