After the announced results of the last elections, the country is entering a period of possible stability and economic certainty. Although like many things in life, moments or time Perfect ones don’t usually happen. Investing in wealth preservation must be a decision exogenous to the factors and circumstances of the moment.

In this article, we will talk about the importance of investing knowledge in the various options available. However, it is important to understand that not all investment options are equal in terms of risk and return. We’ll explore five investment options in Ecuador, from safest to riskiest, and highlight relevant resources to help you make better decisions.

banks

Investing in banks and financial entities regulated by the Banking Supervisory Authority is one of the safest options available in Ecuador. Bank deposits are protected by the Deposit Insurance Corporation (Cosede), which provides investors with an additional layer of security. This covers up to $32,000 per owner and per financial entity in the event of bankruptcy, in accordance with the provisions of Resolution-COSEDE-DIR-2014-001. Returns tend to be moderate but consistent, making them a popular choice for those looking for stability and liquidity.

Deposits in policies for 361 days or more reached a record interest rate of 8.24% in 2023.

Savings and credit cooperatives and mutuals

Savings cooperatives and mutual societies are an alternative to traditional banks and are regulated by the Supervisory Board of the National and Solidarity Economy. Although they offer slightly higher interest rates than banks, they also represent moderate risk. The supervision of the National and Solidarity Economy Supervisory Authority provides a certain level of security, but it is important to research and choose a solid institution that is well managed. Cosede coverage depends on the segment (in accordance with what was prescribed by the Committee for Monetary Policy and Regulation in Resolution-344-2017-F) to which the listed entities belong:

These coverage amounts, as with banks, are per owner and per subject in case of bankruptcy.

Stock exchange or securities market

The stock exchange, unlike banks, does not raise funds, but works as an intermediary for securities traded on the Guayaquil and Quito stock exchanges. This market offers opportunities for investors who are willing to take more risk. To participate in this market you have to do everything through a brokerage house or an investment fund. Profits can vary greatly depending on the type of instruments.

Securities are divided into two major categories:

• Fixed rent: instruments whose performance does not depend on the profitability of the company, approximately this category occupies 99% of the trading volume on the market. Although Cosede does not intervene in the securities market, these instruments have the issuer’s balance sheet as a general guarantee.

Additionally, a large part of the shows are accompanied by certain guarantees and/or protections, which makes the investment even more secure. They are segmented into two subcategories according to the term:

• Variable income: instruments whose performance depends on the company’s profitability, this category occupies the remaining 1% of the volume traded on the market.

These securities, with the exception of transferable commercial invoices, have a risk rating ranging from AAA (the highest, that is, the probability of default is extremely low) to D (the lowest, that is, default or bankruptcy).

Over the counter market

The over-the-counter market is the one that develops outside of stock exchanges, in which authorized securities brokers and institutional investors participate, and securities registered in the Public Register of stock exchanges. The following instruments are some of those negotiated on the OTC market:

It is important to note that liquidity in the OTC market is usually lower compared to public markets. Transaction prices and terms are often the result of negotiations between the parties, which can lead to greater flexibility, but also a greater need for extensive due diligence.

Private market

The private market is those negotiations that are conducted directly between buyers and sellers without the intervention of securities intermediaries. While it is true, it is perfectly normal in the business world to have commercial contracts between parties, whether for transactions, leases, licenses, among other reasons. The problem arises when a natural or legal person illegitimately assumes the role of a financial entity and starts collecting funds from third parties, promising a return in exchange.

To find out which entities are not authorized to collect funds, please follow the following links:

In practical terms, any type of for-profit business or partnership is a form of active investment.

How can I report an unauthorized financial institution?

Because what is ultimately expected is a return on invested capital. Typically, these types of investments require not only capital, but also know-how, administration, operational involvement and/or commercial management.

The ability to adjust risk clearly depends on the ability of the investor to detect opportunities and requires adequate guarantees.

Balance risk and return

Choosing the right investment option depends on your risk tolerance, financial goals and level of investment experience. In the world of investing, the key is to balance risk and return to build a solid, diversified portfolio that helps you achieve your long-term financial goals.

Remember that it doesn’t matter how much you start investing with, it’s important to create an investment habit. By investing, we mean more than generating returns, protecting capital against inflation and impulsive spending.

Note: This article is for informational purposes only and does not constitute financial advice. (OR)