“Hammering nails with a saw”: on investment goals and choosing the right tools

There are instruments in the market designed to generate passive income. There are instruments for preserving capital, and others for growing it. Each of them has its place — but they serve very different purposes. You can hammer nails with a saw, of course, but it’s probably better to use it for cutting.

When capital is not structured, there is no system that connects different assets into a coherent whole. As a result, different objectives — preservation, growth, and income — start to compete with each other. I describe what such a system looks like in practice here .

When the goal is not to lose

If the goal is to preserve capital, conservative instruments are typically used — deposits and bonds. They help protect against inflation. But it’s important to understand their limitations.

As of April 2026, expected returns on bank deposits in Russia, according to the Central Bank, are around 7.5% per year. Government bonds (based on the RGBITR index) offer even less — about 7.2% annually (which makes sense, as they are more secure). Corporate bonds yield on average 1–2% more than deposits.

All of this is before fees and taxes (roughly 1% per year). Meanwhile, average inflation over a comparable period, according to Rosstat, is around 7.3% annually.

Deposits and bonds are like putting butter in the fridge: you don’t get more of it, but it keeps better.

When growth matters more

If the goal is capital growth, you can’t avoid risk assets — equities. That said, the volatility of such a portfolio will be higher.

For example, my colleague Sergey Smolin writes in RBC, based on his own research, that over 20 years a portfolio consisting entirely of Russian equities would have delivered an average return of 14.6% per year, with volatility of 29.3%.

If other asset classes were included, returns would be slightly lower (13.9% annually), but risk would drop almost threefold — to 10.6%.

Such findings are based on Harry Markowitz’s modern portfolio theory and apply to any market, not just Russia. That said, in skilled hands, actively managed concentrated portfolios can also perform quite well — I wrote about this in RBC back in April 2025. I also share the results of my own strategies in this blog.

For income-oriented investors

As for income generation, the stock market offers relevant tools here as well. Among them are:

• dividend-paying stocks
• real estate investment trusts (REITs)
• master limited partnerships (MLPs)
• business development companies (BDCs)
• closed-end funds (CEFs)
• and option-based ETFs

In this case, capital is conceptually divided into two parts: the “principal” and the income stream. The goal is to both protect the capital from inflation and generate a stable current income above market levels.

Capital as a system

Capital is not a pile of stocks and bonds. It is a system in which several objectives are addressed simultaneously or sequentially:

• preserving purchasing power
• achieving long-term growth
• generating a stable income stream

Each of these requires a different approach . Problems begin when all of this is tangled into one. And decisions that are supposed to reduce risk start increasing it instead.

That is why the question “what to invest in” is almost always asked too early. What matters much more is:

• which objective is being pursued
• which part of the capital is responsible for it
• and what level of risk is acceptable for that part

Without clear answers to these questions, even a good instrument can become a poor decision.

There is no universal strategy that works for all goals at once. The effectiveness of investing depends on how well the portfolio aligns with financial objectives.

Sustainable results do not come from finding the “best instrument”. They come from having structure in the capital. When each part serves its purpose — and does not interfere with the others.