Surplus of 70 million per month, should I save or buy gold?

If you have a surplus of 50-70 million VND per month, experts suggest considering a certificate of deposit instead of saving, and allocating a portion to gold.

I am a 29 year old man, married to a woman of the same age. I currently work for a company and have a small company managed by my wife. Every month, after deducting all expenses, my wife and I have a surplus of 50-70 million VND.

With the current economic situation, I asked an expert for advice on where to put this surplus money to avoid inflation. I am confused about two channels: depositing in the bank and buying gold. With depositing in the bank, I see that the interest rate is low, afraid that it will not be enough to offset inflation. With buying gold, I see that the difference between domestic and international prices is high, moreover, the gold price is increasing, afraid that it is "peaking".

Other channels such as stocks, I do not want to invest in this volatile period because I have experienced and feel that I am not capable enough to "take money" from the market. I currently do not have enough capital for real estate, moreover, I already own an apartment to live in and a few small real estates, so at this stage I am afraid of cash flow risks.

Huy

Employees of a store in Ho Chi Minh City are displaying gold on the God of Wealth's day, January 31. Photo: Thanh Tung — Employees of a store in Ho Chi Minh City are displaying gold on the God of Wealth's day, January 31. Photo: *Thanh Tung*

Consultant:

Through your question, I can see that you have researched and have personal experience in investment channels. Therefore, I will give you an overview of the two channels you are interested in, bank deposits and gold, and send you some information related to other investment channels.

Before determining the appropriate investment channel for the monthly surplus of 50-70 million VND, I assume you already have a financial plan and can completely use all the surplus for investment.

Regarding bank deposits and gold, both channels have the advantage of being safe, protecting and increasing capital value. As you have noted, with the current deposit interest rate being only around 5-6% per year, the profit potential from bank savings may be limited due to the impact of inflation, however, you can consider adding deposit certificates at some banks.

A certificate of deposit is a valuable paper issued by banks to raise capital from organizations or individuals. This certificate is like a savings book that you deposit in the bank. The money you deposit will be kept for a certain period of time. At that time, the bank will pay periodic interest on your deposit. The interest rate is usually higher than that of regular savings, but you are not allowed to withdraw money from the account before the contract expires. In case you withdraw money before the due date, you will be fined a fee depending on the conditions and agreement between you and the bank. Some banks allow you to "transfer" this certificate and receive interest on a daily basis. However, whether there is a transferee will depend largely on whether the market situation is attractive enough or not.

The advantage of this product is that the interest rate is higher than the normal savings interest rate. The disadvantage is that the term is long (medium and long term), the liquidity is not high, there is no flexibility and you will not be able to take advantage of the attractive savings interest rates like at the beginning of this year.

Regarding gold, this is a safe haven investment channel, a defensive tool against inflation and when the geopolitical situation is unstable. The domestic gold price is still on an upward trend and is fluctuating around 70 million VND per tael despite the world price trending down. Currently, the difference in gold price between the two markets is more than 10 million VND per tael.

Experts explain that the increase in domestic precious metal prices is due to the fact that they have not been imported for a long time and the supply is scarce. In addition, the increase in USD price is also the reason for the increase in domestic gold prices. Moreover, the increase in domestic gold prices is also due to psychology, the current interest rate situation, and geopolitical instability such as concerns surrounding the Israel-Hamas conflict.

I think this is still an investment channel that generates stable profits. According to statistics from Dragon Capital fund, from 2000 to 2021, the average profit of this channel is 9% per year. However, with the domestic gold price at a high level, you should consider allocating only a portion of the monthly surplus to this channel to optimize the profit of the total portfolio and minimize systemic risk.

In addition, due to the lack of information about your property portfolio, I have not been able to assess the reasonableness and effectiveness of the real estate portfolio. However, real estate is still a channel with the ability to generate stable and quite high profits in the long term. With the current stable and good surplus cash flow, you can consider using financial leverage to buy houses and land. Using leverage will be reasonable when the interest rate you borrow is lower than the growth potential of the purchased real estate.

For example, when you borrow from a bank at an average interest rate of 9% per year, while the growth of residential real estate in big cities is usually at an average of 11-12% per year, you are using "leverage" to increase your family's assets. On the contrary, when the loan interest rate is higher than the growth potential of real estate, it means you should not use leverage. With the loan interest rate at an attractive level and expected to be stable in this country, using financial leverage to accumulate assets is quite reasonable and you should consider it.

Nguyen Thi Thuy Chi
Personal Financial Planning Expert at
FIDT Investment Consulting and Asset Management Company

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