Ermir Myzaferaj Saving money is one of the most important things that each of us should do throughout life. If you want to guarantee yourself a stable financial future, to achieve important financial goals such as buying an apartment, financing your children’s education, a pampering trip or a comfortable retirement – saving is the key. But how do you do it in a smart and efficient way? One of the answers is a savings instrument called a “financial savings policy”.
What exactly is a financial savings policy?
A financial savings policy is actually a long-term savings and investment plan, which allows you to save money while investing in a flexible investment portfolio that includes a variety of investment avenues such as stocks, bonds, cash, foreign currency and more. You can decide on the desired level of risk and return depending on your age, risk preferences and savings goals.
Unlike pension funds and provident funds where the savings are “locked” until retirement age, the savings policy allows you to enjoy maximum flexibility and full liquidity of the funds at any time. Meaning, you can withdraw your savings, or parts of it, at any given moment and for any purpose you choose, in exchange for a reasonable capital gains tax liability on the profits you have accumulated.
Unlimited liquidity – a key advantage
The ability to withdraw the money on demand is a significant difference between a savings policy and pension funds and provident funds. Although the latter can offer higher returns over time because of the “locking” of the funds, they do not allow significant flexibility. In a financial policy, the money is available to you at any time for an emergency, a large purchase or for any other purpose.
This means that you can open a financial policy and invest funds for any goal, long or short term – from saving for an apartment to a vacation you want to take soon. Everything is available and completely liquid. Moreover, unlike most other savings and investment avenues, in a savings policy there is no need to deposit a minimum amount for investment. You decide how much and when to deposit and how much to spread the deposit over time.
Maximum flexibility in choosing investment routes
A central part of the outstanding advantages of the savings policy is the maximum flexibility in choosing the investment routes and the rate of savings, according to your needs and preferences. When setting up a policy, you can choose a wide variety of combined investment paths, each designed for a different risk level, asset composition and investor profile. Among the possible routes:
Stock track – most of the funds are invested in stocks in Israel and abroad – this is a track that is mainly suitable for young investors who are interested in aggressive investment.
The bond track – investing in solid bonds at a fixed interest rate – is suitable for risk-averse investors.
The Shekel route – investing mainly in index-linked deposits – is suitable for solid and conservative investors.
The foreign exchange route – investing in assets in foreign currencies – is suitable for those who want to spread risk abroad.
Combined routes – merge between solid assets and more risky assets according to a certain composition.
Specialized tracks – such as technology track, corporate bond track, etc.
It is important to note that there you can combine the different routes and divide your investments accordingly.
Easy and quick transition between routes, without charges
Another point that is important to understand is that switching between the different routes in the savings policy is very easy and readily available. At any time, you can decide to switch from active management to passive management or change the course entirely. Everything is done quickly and within a few days. The transition does not involve any tax charges or fees.
Maximum diversity
In the savings policies, you are not limited to only the fixed range of routes. You can also combine them as you see fit and build a combined portfolio with maximum diversity.
For example, one quarter of the savings can be concentrated in a stock route, a quarter in a bond route, another quarter in foreign exchange and a small part in cash. The result is a well-diversified portfolio over time, which benefits from the advantages of different products and provides maximum diversity.
Loan against the policy without guarantors
Another and significant advantage of the savings policies is the possibility of relatively easily receiving a loan from the managing company, against the funds accumulated in savings so far. The company considers the policy to be very safe and secure that the loan will be repaid in full, which makes it possible to receive this loan without guarantors or complex approval procedures.
The loan is given for an amount of up to half of the accumulated amount in the policy, and is paid back in fixed payments over time. Even if the entire savings has decreased, the loan will continue to be repaid in the same way, but at a lower value.
Choosing the right investment routes
When you choose the investment routes within your savings policy, it is important to consider factors such as your age, your desired risk level, your savings profile (short or long term) and your specific savings goal. This way you can correctly choose the most suitable track composition.
In general, the younger you are and the longer you save for the long term, the more you can consider the possibility of being more aggressive and combining higher risk equity investment paths. On the other hand, as you approach retirement age or the savings goal is closer, it is better to classify a more solid and conservative composition of bonds, cash and index-linked assets.
Summary
A financial savings policy is a diverse, flexible and highly effective savings and investment channel for many savers. It offers high liquidity, maximum diversification, ease of transition between routes and the possibility of receiving loans. However, before purchasing a savings policy, it is important to examine a number of considerations, including the amount of the management fee, the terms of the policy, the performance of the issuing company and make a careful choice of the investment routes according to age and purpose. A correct choice and continuous monitoring of the policy will allow you to get the most out of this savings device.
With the help of personal financial advice from the financial experts of the wise company, you can purchase a financial savings policy that is just right for you with peace of mind. We will examine your needs and personal characteristics and accordingly recommend choosing the most appropriate and profitable product over time.
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