Marian Siminică, Executive Director of ISF: There is a desire among young people to be informed about the realities of financial markets
The Executive Director of the Institute of Financial Studies (ISF), Prof. Dr. Marian Siminică, spoke at the Financial Education Summit, an online conference organized by Newsweek Romania, about the importance of financial education in the development of the Romanian economy. Marian Siminică presented several programs conducted by ISF in this field and noted that the results obtained are encouraging, especially as young people are drawn to everything that financial education represents.
“At ISF, our strategic objective is to contribute to increasing the level of financial education, alongside ASF and all entities involved in non-banking financial markets. We have ongoing projects focused primarily on younger generations, students, and high schoolers. One of the major projects we launched in the spring of last year is currently running online, the SmartFin project, where we invited specialists from entities in the non-banking financial markets – including capital markets, insurance, and private pension funds – to talk to students about career management, investment opportunities, product and service explanations, and more. The impact has been extraordinary; we have ongoing projects with 20 partner universities, over 50 organized events, and more than 4,000 participating students who listened, asked questions, received answers, and importantly, returned when we organized another event at the same university. Therefore, there is a desire among young people to be informed about the current realities in financial markets,” stated Marian Siminică, who is convinced that programs like this contribute to increasing public confidence in investments in financial instruments. The path from here to an investment decision is quite short.
“Financial education is a very important pillar that can support the capital market and can lead to an increase in the participation of investors in attracting financial resources for financing the economy. It is true that we observe from official statistics the developments in financial markets over the past year, which have resulted in an increase in the number of investors and investment opportunities, indicating a growing public interest in such investments. However, it is crucial to see the whole picture, not just the positive aspects. Every potential investor must understand that investments in financial instruments have a much greater potential for profit than bank deposits, but they also come with a series of associated risks, which are much greater than those of bank deposits. Historical trends have shown that there can be periods of very high increases, as was the case in 2021, but there can also be periods of price declines – and we see this in the past week, where external events have affected the markets. Potential investors need to be aware of the profit potential, but also that it comes with associated risks,” said Marian Siminică.
The main concern is not to quickly attract a large number of new investors to the capital market, explains Marian Siminică. Without proper financial education, these individuals may choose a wrong strategy and incur losses, and disappointment can lead to a quick exit.
“Currently, according to BNR statistics, the majority of the population invests in bank deposits, possibly in government securities. Although the number of investors in financial instruments is increasing, it remains low compared to the number of bank depositors. It is a significant challenge for everyone to attract as many people as possible to invest in financial instruments, but I believe it is more important to ensure sustainable engagement, so these individuals remain active in financial markets for an extended period. This is only possible through adequate financial education. This makes the difference, as financial education enables the investor to select the instruments in which they will invest,” says Marian Siminică.
In other words, the risks in the capital market can be limited with the help of financial education. If more and more Romanians recognize the advantages of the stock market, become informed, and adopt a suitable investment strategy, they have every chance of achieving good returns.
“Investments can be made in several types of financial instruments: whether we are talking about stocks, bonds, or fund units. If we aim to, and it would be good to do so, we can harmonize our return objectives and performance with those of risk reduction. It is wise to take measures to protect ourselves against risks, and it is not advisable to place all our available funds into a single financial instrument or with a single issuer. This is a mistake that leads to a significant increase in risks. This approach differs from the situation where we want to deposit an amount in a bank. Diversifying the investment portfolio is recommended. It is one of the fundamental rules for a new investor in financial instruments. To diversify the portfolio, the investor must make a selection among different titles in which they are willing to invest. For this, again, financial knowledge is needed – we cannot randomly choose the stocks we invest in. An analysis of their profitability, of the evolution of financial results, a basic analysis is necessary. It is not a complicated analysis, but it requires a minimum level of financial knowledge. Based on the financial reports that companies submit every three months, an investor with an average level of knowledge can do this. For those who do not have that much knowledge, or for those who do not have time for these analyses, it is often recommended to replicate a stock index. Essentially, invest the entire amount based on the structure of a stock index. The Stock Exchange calculates several such indices, the most well-known being the BET index,” explained Marian Siminică.
The Executive Director of ISF concluded his speech by reviewing some recommendations for beginner investors.
“They must understand that investments in financial instruments like stocks or fund units, while riskier, are more profitable, as the potential gains generated by them are significantly higher than those from bank deposits. Even though there may be short periods where losses are recorded, because, as mentioned, they are not guaranteed, over a longer period, the returns obtained are significantly superior to those from bank deposits. Another important point: It is believed that to invest in the stock market, large sums of money are needed. This is not true; one can invest small amounts, and it is even recommended to start investing with small sums that are periodically added, monthly or quarterly, as the investor gains confidence in the financial instruments. Again, an important recommendation: invest for the long term. Investments in financial instruments are recommended for a period of at least 3-5 years, a longer period, because in shorter periods of one or two years, we might catch an economic cycle in which prices have significantly dropped and we might experience disappointments. Last but not least, invest diversely. We must avoid exposure to a single type of financial instrument or a single issuer. Distributing investments in a diversified portfolio appropriate to the structure of a stock index, for example, or in fund units, smooths out gains and reduces risks,” concluded Marian Siminică.
