There was a time when having a savings account was enough. put our money to work, but the interest rate was low in exchange for the absence of any risk. With a banking panorama still marked by underground interest rates, financial institutions offer different alternatives to their customerssome in the form of investment products, some in the form of savings products.
With this in mind, the client should be fully aware that the possibility of obtaining a certain return on the capital he decides to invest, although not without risk, and losses may occur. And in a world full of uncertainty, this is something to consider. Like this, The main advice when it comes to investing is the same that will serve many other aspects of life: act with common sense.. Here are five more key recommendations for a reliable investment:
Be clear about your goal
The first step before starting any project is to be clear about the project. ‘for what’. The same thing happens in the case of investment and Before deciding on any action, it is necessary to set a specific goal.. For example, if you are considering having a comfortable retirement, we should prioritize long-term and tax deferral (taxes are only paid when refund occurs). Experts recommend in this case a portfolio of mutual funds, individual systematic savings plans and retirement plans.
if they love each other earn income that completes salary faster, the right step would be to invest in shares of companies that produce dividends. That is, they distribute the profits among their shareholders. For this, you can invest directly in the stock market by choosing the most suitable companies or invest in a savings mutual fund.
A family may also notice. Mid-term goals such as buying a house, securing children’s college education, or giving themselves a good trip. Here you can resort to simple savings or try to get an extra boost, but minimize the risk. This PIAS They are still a good option, as they are life-saving insurance designed to make periodic contributions and are redeemable at any time, although they do have tax benefits only after five years have passed.
Evaluate what risk you are willing to take
When it comes to investing, there is no magic trick: The higher the security, the lower the profitability and vice versa.. Therefore, it is recommended to act according to the investor profile of each: conservative, moderate or risky. And it’s not about how much money you want to make, it’s about how much loss you can take without a financial disaster.
Priority for those who value peace and security deposit and paid accounts (although interest is currently low), guaranteed products, structured deposits and savings insurance (which also have different risk profiles). One step further would be fixed income and short-term debt., through both government and corporate debt issues. If you want to extend the time horizon, there is a stable income in the medium and long term, but it must be taken into account that as the years increase so does the uncertainty. In moderate terrain they would also stand mutual funds, retirement plans, PPAs and Unit Linkedwhere you can always choose the risk level.
And on a riskier plane direct investment in the stock market (risk decreases as diversification increases), cryptocurrencies or derivatives Like CFDs or binary stocks. In the latter cases, they are high-risk assets due to their complexity and high volatility.
Time can be your ally if you know your rules
When it comes to investing, time cannot be accelerated or stopped, so its rules and alliances must be adhered to. The time horizon of any investment means asking the question: How long can I do without some of my savings for them to generate profitability?. And from there, cross this data with another data mentioned above, such as searched targets. The result of this equation will help you discover whether you are interested or not. a short, medium or long term investment.
Of course, again, the risk-return binomial always goes hand in hand. In a short-term investment, the risk must be increased to get a higher return (for example, by investing in a startup with growth potential), but there is a risk of losing the invested capital without room for maneuver. Then, Here, common sense dictates that such actions should be done in limited quantities and do not imply total savings.. You can also expect lower performance in exchange for higher security.
If you prefer to invest long-term, although it is impossible to predict the behavior of the markets, you should remember that: the stock market trend is on the rise and the longer the time horizon of the investment, the less chance of losing money. Additionally, the risk of volatility may increase as there is more time to recover from a loss. In this sense, diversification can be understood in terms of both spatial (having several different investments at the same time) and temporal (assuming instantaneous fluctuations).
Always have a financial pillow
After recognizing that any investment can carry risks and it is necessary to be clear about goals, time horizon and profile, it is time to answer one final question: How much money do I deposit? The most repeated advice by experts is that you usually invest money you don’t need or are prepared to lose (in case things go terribly wrong).
In other words, it’s about calculating monthly expenses and comparing that to income, in addition to the portion devoted to more traditional savings. To this should be added the following concept: financial pillow. That is, an amount of money that is secured in times of market downturn to ensure a certain financial stability and to face unforeseen expenses.
this would be the bed three to six months of fixed expenses or even income. In other words, if your monthly fixed expenses are 1.500 Euros, you should save 9.000 Euros before starting the investment. This will allow the investor to face unforeseen expenses without having to stop their investment plan, deal with unplanned expenses without investing in stock market dips, and make sure they have money to maneuver no matter what.
Just as important as investing is reinvesting
It’s good to have a broad perspective that lets you see the entire itinerary, beyond the maturity and amount of a particular investment. And knowing that time is an ally, as long as the fire is fueled to grow even bigger. To do this, you need to add firewood, or you said financially, reinvest the resulting returns so that the base becomes increasingly larger.
Here comes the call compound interest, which is against simple interest. The second consists of always investing the same amount and therefore always getting similar benefits. But if Instead of saving or spending, profits are reinvested, growth can be exponential. So if you first invest 1,000 euros at a rate of 10% per year, you will have a profit of 100 euros at the end of the year. If these are added to the invested capital, the profit in the following year will already be 110 euros. And it will progress from year to year
In this sense, compound interest perseverance and patience. If, in addition to the initial savings, the profit for each month is added, the so-called snowball effect will be created, in which it will become larger and larger. And in addition, if new capital is added every month, the progress will be exponential.