The end of November is that time of year when the Portuguese (employees) receive an extra income. O Christmas subsidy, most of the time, already has a destination before reaching the bank account🇧🇷 Car insurance, that extra expense, the purchase of goods for the house that has been postponed and a variety of other options for spending the money received in what is known as the 13th month. cost of living families face this year, the “doubled” salary this month could represent a relief to face the impact of rising prices of goods and services.For families that have the financial capacity to pay current or extraordinary expenses without resorting to the Christmas subsidy, the best option is to apply the money to savings solutions for the future.An extra salary, by itself, will not be enough to make a significant investment. But it can represent starting a savings solution, or reinforcing an application that has already been set up.We present five options that may be attractive to apply the Christmas subsidy, depending on your risk profile.
amortize debts
Before thinking about applying your money, you should first look at the debts. To define whether it is more favorable to pay off loans or invest, you must compare the interest rates of the two options🇧🇷 If you have no prospect of obtaining an income greater than what you can save with the end of the credit, then you should choose to pay off the debt. The current context favors this last option, as the interest rates will continue to rise and are expected to remain at high levels for some time🇧🇷 The worsening of monetary policy reaches credit interest more quickly, while interest on deposits still persists at very low levels. ever select first those with the highest interest rates🇧🇷 Always bearing in mind the commissions that this decision entails, it will be convenient to deal with personal and consumer credits first, as they are usually for smaller amounts.Reducing the number of credits is always recommended, but don’t forget to consider reducing the installment of your mortgage loan. The monthly cost of the loan represents a considerable portion of family expenses, so every effort to mitigate this burden must be taken into account. It will not make sense to use the Christmas subsidy to amortize part of the mortgage loan. But you can use this money to accumulate savings in order to lower the amount of debt to the bank when it reaches an amount that can translate into a significant reduction in the monthly installment. When interest rates were at historic lows, repaying home loans was less attractive, as the payment of installments was almost entirely to reduce the outstanding capital. With interest rates moving towards levels in line with the historical average, already it makes sense to analyze the advantages of amortizing the credit🇧🇷 Using even the savings you have invested in products that may not be generating the desired return.Read more: Mortgage loans: Commission-free early amortization in 2023
Saving Certificates
Savings certificates are, at this point, the best alternative among guaranteed capital solutions, which is why it is intended as a very low-risk option, this State savings product is the right choice. . At Subscriptions made in November already offer a gross return of 2.492%, which corresponds to a net remuneration of 1.79% (withholding tax of 28%). Taking into account the high inflation (above 10% in October), in real terms the return is still negative. But the prospects are positive, as it is there is a high probability that the rate on savings certificates will continue to rise over the next few months.The return on this product is indexed to the evolution of the 3-month Euribor, plus an additional 1 percentage point. If the ECB’s expectations of raising interest rates to (at least) 2.5% next year are confirmed, the savings certificates will reach the maximum rate of 3.5%🇧🇷 In addition, there is a permanence premium (0.5% between the beginning of the second year and the end of the fifth year, and 1% from the beginning of the sixth year). destination for long-term savings, highlighting the fact that interest to be capitalized at the end of every three months🇧🇷 Liquidity is very high (redemption outside the maturity period only threatens interest for that short period) and reinforcements can be made at any time. of 2,500 euros at the end of the 10 years of the application, which corresponds to a gross effective interest rate of 3.22%.Saving certificates have a term of 10 years, a minimum subscription of 100 euros (100 units at 1 euro each) and a maximum of 250,000 euros, and interest is capitalized every three months (the rate is changed in end of each period). They can be subscribed at CTT branches, at Espaços Cidadão and via the AforroNet website (you must be a member). By subscribing to savings certificates, you are lending money to the Portuguese State, the very low risk of capital loss.Also read: How to subscribe to savings certificates?
PPR
Retirement Savings Plans (PPR) are the most common choice when saving money for retirement. There are several advantages, notably the taxation, adequacy to the risk profile and long-term investment.They are also an appropriate destination for the Christmas subsidy, as the PPR work on a logic of regular contributions, in which it is possible to make reinforcements at any time. If you don’t have any yet, the extra income this month could be an opportunity to subscribe for the first time, starting a important addition to your renovation.There are PPRs with different risk levels, which must select according to your profile and age🇧🇷 You can opt for a retirement savings investment fund, or PPR insurance, in which case there are guaranteed capital solutions, although with lower prospects of returns. The popularity of PPR is closely related to the tax benefits. The advantages have already been higher, but they are still attractive and compare favorably with the taxation of other traditional products of savings. When you subscribe to a PPR, you guarantee a deduction for IRS collection corresponding to 20% of the amount invested🇧🇷 You lose the benefit if you redeem it before the legal deadline and these are the maximum benefits limits: 400 euros per taxable person, up to 35 years old; 350 euros per taxable person, between 35 and 50 years old; 300 euros per taxable person, above age 50. When you redeem your PPR, or receive a refund from the application, you benefit from a lower IRS rate. If you receive it in the form of periodic regular installments, it is tax treated as if it were a pension. If you receive it all at once, the effective tax rate is 8% (withholding tax of 20% on 40% of the amount). He can redeem without penalties in the case of specific purposes, such as amortizing mortgage loansRead more: Doutor Finance launches PPR with a target of yield between 7% and 9%
bond fund
Mutual funds are always a good option to apply savings. There are products with different types of risk that can combine across asset classes and geographies, offering investors a wide range of alternatives. Liquidity is high and redemptions can be made at any time, but there is no guarantee of capital. Funds specializing in the bond market have a low risk rating, which is not at all consistent with performance in 2022. The most aggressive campaign to raise interest rates in recent decades, to respond to high inflation, heavily penalized debt securities prices sovereign (issued by countries) and corporate (issued by companies). Bond prices vary inversely to yields. Most bond funds marketed in Portugal register negative returns close to double digits in 2022, in line with the performance in the global market. This year’s poor performance also affects returns when longer terms are analysed, as shown in the table below.
Bond funds with negative average annual return
Investment fund categoriesEuro Indexed Rate Bond FundsEuro Bond FundsInternational Bond FundsData up to November 11, 2022 The prospects are currently more encouraging, as the cycle of worsening interest rates is already closer to the end and the world economy is severely slowing down, a combined effect that favors bond yields🇧🇷
stock fund
Shares are also going to be a year to forget in 2022, which heavily penalized the investment funds most exposed to this asset class. Only national equity funds escape negative returns, and the most funds suffer losses of more than 10%🇧🇷 In the broader temporal analysis, the performance is quite positive. This performance perfectly illustrates how the stocks are a very high risk investment alternative and how can this be mitigated if the application is carried out in a long-term logic🇧🇷 Anyone who subscribed to a global equity fund earlier this year is losing more than 10%. Those who subscribed to it five years ago, the investment is generating an average annual return of more than 8% despite the sharp declines this year.
Equity funds suffer sharp losses in 2022
Investment fund categoriesnational stock fundsIberian equity fundsEuropean equity fundsNorth American equity fundsglobal equity fundsOther international equity fundsData up to November 11, 2022 The accelerated rise in interest rates by central banks to combat high inflation explains the significant falls in stocks in 2022 and risks putting the global economy into recession. However, expectations are growing that equity indices have already bottomed out, the potential for additional devaluations is limited and shares are already at a level considered attractive. long term. The alternatives available among financial institutions in Portugal are very diverse, with that there are also lower risk funds that combine stocks with other assets🇧🇷 This is the case of multi-asset funds, which are classified according to their risk profile (defensive, moderate, balanced and aggressive). 
Born in 1977, he has been a journalist since 1999. He started his career at Jornal de Negócios, where he spent more than 20 years, occupying various functions, always focusing on online. He is currently an independent journalist, subscribes to the daily Morning Call market newsletter and regularly collaborates with ECO. Graduated in Management at ISEG, he has a special interest in everything related to financial markets.