You set aside a certain amount from your monthly income. Over time, your savings start to build up. You do not want to spend this money, but simply keeping it aside no longer feels sufficient. And that is when a simple question arises: “How can I put my money to better use?”

When you start thinking about investing, even more questions come up:

Where should I start? How much money do I need to begin investing? What is risk? What is the difference between stocks, bonds, and ETFs? How should I allocate my money? How can I tell whether an investment instrument is right for me?

We asked these questions to Elshad Ibrahimov, Director of the Treasury Department at Kapital Bank.

- What should someone who wants to start investing but has no experience in this area do first?

- Choosing a specific investment instrument should not be the first step. First, you should ask yourself a very simple question: “Why am I investing, and when will I need this money?”

For example, your goal may be to build long-term capital, buy a home, save for education, or create an additional source of financial resources for the future. The time horizons for these goals are different, so naturally, your approach to investing will also vary.

There is another important point to keep in mind. The money you invest should not be the only funds available to you in case of unexpected expenses. Market prices can decline at certain times. If you need your money precisely when the market is down, you may be forced to sell your investment at an unfavorable price.

That is why I would approach the process in the following order: first define your goal, then assess your financial situation, and only after that explore which investment instruments may be suitable for you.

- What is the difference between saving and investing?

- When we talk about putting money to better use, it does not necessarily mean investing. A savings account and a deposit are also options that allow you to earn income on your funds.

For example, if you plan to use your money in the coming months and want to keep it accessible, a savings account may be a suitable option. With a Kapital Bank savings account, you can even deposit money that you plan to spend as soon as tomorrow and earn income on it. At the same time, you retain the flexibility to use the funds whenever you need them.

If, however, you do not plan to use your money for a longer period, a deposit may be an alternative. One of the main advantages of a deposit is the opportunity to earn income under predetermined terms.

Investing is different. Here, the investor accepts the risk of changes in the market value of assets in exchange for the potential to earn a higher return.

That is why there is no universal answer to the question, “How can I put my money to better use?” You need to consider what you are saving for, when you will need the money, and what level of risk you are prepared to accept.

- What should someone who is saving for the long term consider when thinking about the future value of their money?

- It is important to take inflation into account. Even if the amount of money remains unchanged, rising prices can reduce its purchasing power. For example, today AZN 10,000 may be enough to buy a certain range of goods and services. In a few years, the same amount may no longer be enough to purchase the same things. In other words, the figure in your account has not changed, but the real value of your money has.

That is why someone saving for the long term should ask not only “How much money have I saved?” but also “What will the purchasing power of this money be in the future?”

At the same time, it would be wrong to interpret this as a call to invest all your savings. Investments also carry certain risks, and the same option will not necessarily be suitable for everyone. The key is to explore options based on your financial goals, time horizon, and financial capacity.

- What should an investor actually understand when it comes to risk?

- When we talk about risk, the first thought that usually comes to mind is, “I could lose my money.” Of course, that is one aspect of risk, but for a new investor, the issue is somewhat broader.

Let’s say you have invested USD 1,000, and after some time its value falls to USD 800. Your natural first reaction may be: “I lost USD 200.” But there is another question to consider: “When will I need this money?”

If you do not need the money in the near future, you may have the option to wait out a market downturn. But if you definitely need that USD 1,000 in three months, the situation is different. You may be forced to sell when the market is down and lock in a loss.

That is why it is important to look at risk from two perspectives: “Am I psychologically prepared for these fluctuations?” and “Does my financial situation allow me to take this level of risk?”

In other words, risk is not only about asking, “How much could I lose?” Sometimes the more important question is: “Could this loss disrupt my financial plan?”

There is another principle worth remembering: higher potential returns generally come with higher risk. A promise of “high returns with zero risk” should be treated as a serious warning sign.

- How can a beginner understand the difference between stocks, bonds, and ETFs?

- When you start investing, the first thing you need to understand is what the available investment instruments actually are. It is difficult to make an informed choice without knowing what you are buying.

A stock represents an ownership stake in a particular company. Its price may be affected by the company’s financial performance, its business prospects, and market expectations regarding the company.

A bond is a debt instrument. You provide funds to a government or company for a certain period and may earn income in accordance with the terms of the bond. However, bonds should not automatically be considered “risk-free investments.” The financial condition of the issuer, maturity, interest rate, and other terms are all important factors.

An ETF, or exchange-traded fund, is a fund traded on a stock exchange. It may contain a number of stocks, bonds, or other assets. For example, an ETF that tracks a particular index can provide access to a large number of companies included in that index through a single transaction.

That is why I would not give a universal answer to the question, “Which one is better?” The key is to understand which instrument is aligned with your goals, investment horizon, and risk capacity.

- Does it make sense not to put all your money into one investment?

- We often hear the advice: “Don’t put all your money in one place.” In fact, this refers to diversification. But diversification does not simply mean buying different stocks. For example, if you have invested all your money in stocks of different technology companies, you may have a large number of companies in your portfolio, but it can still be heavily dependent on the performance of a single sector.

A broader approach may involve considering different asset classes, such as stocks, bonds, and cash, as well as different sectors, companies, and geographic markets.

ETFs can also help with diversification in certain cases. However, buying an ETF does not automatically mean that risk is fully diversified. The key is to understand which assets are included in the ETF.

In other words, the goal of diversification is not simply to have many different investments. The aim is to prevent a negative change affecting a single company, sector, or market from having an excessive impact on your overall portfolio.

- What should investors look at when choosing a specific investment instrument?

- The first question a beginner should ask should not be, “Will this investment go up?” It is better to start with simpler questions:

What exactly am I buying?

Where does the return on this investment come from?

What are the main risks?

What could affect its price?

What costs will I incur?

And perhaps the most important question: “Do I really understand what I am investing in?”

For example, if you are buying stocks, you should understand what the company does and how it generates revenue. If you are buying an ETF, you should research which index or sector it tracks, what assets it contains, and what costs are involved. If you are buying a bond, you should understand who the issuer is, its maturity, the terms under which returns are generated, and the key risks involved.

Today, digital platforms are making investing more accessible than ever. For example, Birbank Invest allows users to start investing with as little as USD 1 and provides access to more than 12,000 stocks and ETFs. This lowers the barrier to entry for investors. However, having more investment options does not change one fundamental principle: investors still need to understand what they are buying.

Being a good investor starts not with finding the “right stock,” but with learning to ask the right questions. The goal of investing is not to take advantage of every opportunity, but to make decisions that you understand, that align with your financial plan, and whose level of risk you are prepared to accept.

- Thank you for your detailed answers. I think we will certainly return to this topic again.

- I’d be happy to. Thank you for the conversation.