An option for your savings

Invest, a thoughtful decision

Investing can be an excellent way to get closer to our goals … provided that it is done with a responsible attitude and after analyzing all the necessary information.

The importance of choosing well

Take all the time you need before investing. When you buy a good that is defective, or that does not fit your needs, you usually have the option to return it, but things do not work that way with financial products. It is always better to choose well from the beginning, so do not rush. Going back on investment can be complicated and expensive.

The concept of risk-return in investment decision-making

Uncertainty about the result (risk) is a characteristic associated with any investment, to a greater or lesser extent (in some products it is easier to predict the performance). Remember that profitability expectations are always based on the level of risk that is assumed: the higher the expected profits, the greater the risk.

Steps in making investment decisions

We indicate the three levels to get a buy now pay later loan you must follow to make informed investment decisions and know in advance what you can expect from your investments.

We have already commented in other blocks the difference between savings and investment. Investing involves committing part of your savings with the hope, but without the certainty, of obtaining a return in return. As there is no certainty of getting that profitability, investing implies risk.

Why invest?

You may ask yourself, “Why to invest if it means I have to risk my money?” Never forgetting this risk, the investment can help you generate more money than you could get by merely saving, and in less time.

Having more money is something we all want. Money opens the door to many opportunities and provides personal freedom to live as one likes and to take care of our loved ones. The investment makes this possible, but it is also increasingly necessary if you want to accumulate the capital required to enjoy a quiet retirement, without severely diminishing your lifestyle when you stop working.

Think about your current financial situation and where you would like to be in 5, 10 or 20 years. To reach that destination you could save little by little, within your means, and put the money in a bank account, deposit or other product without risk. It would be to follow a safe path, but these products usually pay a slight interest, and it could take a long time to reach your goal.

The roads of investment have dangers. If it’s terrible weather, they can close and force you to stop or take a detour, or even go back beyond the starting point. But these roads could also make it possible to prevent, get there earlier and go further.

Investment is also a way to make your money work for you. Most of us have to work to get our income. If we want to earn more, we have to work more. But there is a limit of hours that we can or want to dedicate to work and not all jobs pay what we would like. The investor has the possibility of making money while sleeping, eating, going out with friends or spending time with his family. When we invest, we try to make our savings produce new savings without having to work more hours or look for a new job.

Intelligent and conscious investment can allow you to have more control over your finances and face your future with more confidence.

Investing is NOT a game

It is also crucial to be clear that investing, although implying the risk or uncertainty of the results, does not mean playing at random. Do not confuse the investment with a casino game. It is true that there are people who invest based on intuition or feelings, or the “hot” Internet tips, a co-worker or a family member.

The severe and responsible investor does not play with his money or with the economic security of his family. It only invests when there is a reasonable expectation of profitability according to the risk it wants and can assume. It only invests through authorized intermediaries and after consulting reliable information. It only spends the money that will not be essential in the short term for other obligations. And it only invests according to its objectives and personal situation.

The importance of choosing well

When it comes to investment decisions, the massive supply of alternatives in the market can be overwhelming. The private investor has to decide what to do with their savings, choosing a path among many possible ones.

I invest?
I do not invest?
How much money?
In what product?
During how much time?
With what entity? Etc. etc.

They are not called to be taken lightly. Acquiring a particular financial asset involves compromising your savings and therefore conditions your financial capacity, present, and future.

In this block, we will see some aspects that will help you make these decisions. It is not about recommending a specific product or value. There are no magic formulas, or one size fits all solutions. But there are recommendations and steps to follow that will help you achieve your goals.

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It is critical to keep in mind that investment is just one of the strategies for achieving your financial goals. The concept of financial planning is broader and encompasses other vital policies such as controlling expenses and increasing savings through a personal budget, debt management, etc. We recommend reading the block “How to get to the end of the month” to review these critical concepts and thus ensure that your investment strategy fits well within this global planning.

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The concept of risk-return in investment decision-making

Risk-return binomial

As we will see throughout this block, one of the most important characteristics to differentiate one investment alternative from another is the level of risk involved. Before proceeding, it is essential to know the basic concept of the risk-return binomial.

  • The ability to generate returns is known as profitability.
  • In an investment, future returns are not safe. They may be significant or modest, may not occur, and may even mean losing the capital invested. This uncertainty is known as risk.
  • There is no investment without risk. But some products involve more risk than others.
  • The only reason to choose an investment with risk in the face of a risk-free alternative is the possibility of obtaining a higher return from it.

At the same risk conditions, you have to opt for the investment with higher profitability.
In the same conditions of profitability, you have to choose the investment with less risk.
The higher the risk of an investment, the higher its potential profitability will have to be to make it attractive to investors. Each investor has to decide the level of risk that he is willing to assume in search of higher returns. We will see this a bit later.

investment strategies are usually classified as “conservative,” “aggressive,” “moderate,” etc., terms that refer to the level of risk assumed, and therefore the potential profitability sought.

The more risk is assumed, the more profitability should be demanded. Likewise, the more profitability you want to obtain, the more chance you have to think.

Watch out! Risk and profitability go hand in hand, but accepting higher risk is no guarantee of higher returns.

Steps in making investment decisions

The steps in making investment decisions should be:

Before investing: Determine your investor profile.
According to if this one is more or less conservative, more or less risky, this way different products or investment assets will be associated. For example, traditionally, investment in fixed income is related to conservative risk profiles. In the same way, high yields would be closer to the portfolio of an aggressive investor.

At the time of investing: Choose an authorized broker and choose the specific products.
Keep in mind that investment is not a game and carries its risks. Do not be fooled by generous interests. The fundamental thing is to know thoroughly the product in which you invest, its terms and possible yields without losing sight of the associated volatility.

After investing: Monitor your investments

Controlling where your money is is not new. The same happens in the case of the capital that you have spent to obtain returns. It monitors the expiration periods, the possibilities of transfer to reap greater benefits or the right time to liquidate those assets. Only then the investment process in which you are immersed will be entirely satisfactory.

By |2019-02-07T10:07:01+00:00February 7th, 2019|Blog|Comments Off on An option for your savings
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