Fortunately for those who generate savings and want to make a profit, there is a huge variety of financial vehicles in which to channel it. Whether they are financial assets (deposits, fixed-income securities, shares, investment funds or pension plans, among others) or non-financial assets (real estate, gold, art, etc.), each investor can find solutions to their needs and expectations.
However, creating an appropriate investment portfolio is not a process in which shortcuts should be sought. Successful financial planning requires a thorough analysis to solve issues such as:
- What will I save for?
- What time horizon do I have?
- What is the level of savings that should be achieved at the end of the process?
- What level of risk am I willing to assume while it lasts?
Once these important points have been clarified, we can define and apply the right strategy to achieve the goals, that is, we will determine how to carry out the investment. To do this, you should follow certain tips:
Avoid investing in what is not understood
A basic principle of investment. If we can not understand the operation of a certain investment, it is not for us.
Begin in advance
Time is an ally of vital importance in investment processes. It offers us, on the one hand, the possibility of assuming certain risks when the expiration of our investment plan is far and, on the other, allows the effort to be more gradual.
It is important to keep in mind what is known as the “rule of 72”: it is a measure that indicates how many years are needed so that an investment with compound interest doubles its value. Simply split 72 between the interest rate. Thus, an investment with a compound interest of 6% will double its value in 12 years.
Another golden rule of investment that we can colloquially call “avoid putting all the eggs in the same basket”. In an investment process, concentrating it on one or a few assets is exponentially raising the risk that is assumed, while distributing it correctly among several will reduce the risk of loss.
Get to know all our funds and choose the one that best suits your needs: more information
Let us suppose the case of a person who saves through an investment fund and whose objective is a specific year to invest € 6,000. What’s better, a punctual contribution for this amount or a monthly contribution of € 500 for each of the 12 months?
The answer is aligned with the previous question: in the investment process, it is also necessary to diversify the contributions, as it also reduces the risk. In this case, make the whole contribution at an unsuccessful purchase price.
Understand the profitability-risk binomial
It will always happen that aspiring to more profitability will imply assuming a higher level of risk. The relationship between these two variables will always be direct. Always set the risk you can assume and, with that, try to maximize profitability.
Attention with the leverage effect
There are investments that are known as “leverage.” In these, the amount effectively invested is reduced, but exposure to the underlying asset is much higher. This can cause a multiplier effect of losses. These investments are high risk and for a very specific type of investor.
Do not indebted
Debiting to invest may cause undesired effects if the investment result is not what is predicted. Always invest within the limits of your real capacity.