- Know your financial objectives and your risk tolerance to be able to choose investments with a level of risk, profitability, and term suitable for your profile. Take your time and compare alternatives until you find the one that best fits. Never invest in products you do not understand.
- Seek professional advice for making investment decisions, but remember that the ultimate responsibility is yours. To avoid displeasure, keep in touch with your intermediary and determine the scope of your duties and freedom to act, as well as your style and philosophy.
- Only allocate to the investment the surplus between your income and your common expenses. Eliminate the debts for which you pay high interest first and clean up your current financial situation, before making investment decisions.
- Invest for the long term. Markets rise and fall, but in the long term there are usually more ups rather than downs. Know how to stay on course and do not get distracted by daily variations.
Diversify, diversify, diversify.
- Always in a manner consistent with the deadlines of your objectives, it is advisable to maintain a mix of investments with different time horizons in order to meet different needs as they arise.
- Beware of the costs! Compare the fees and commissions of each entity well. They have a great impact on the final profitability of your investment.
- Avoid performing an excess of operations in an attempt to “beat the market”. Nowadays it is relatively easy to make speculative investments, buying and selling in the short term through the Internet and operate in markets previously reserved for experts. However, just for being easy, it is not recommended.
- Start investing sooner than later. Of all the factors that affect the accumulation of capital by investment – initial amount invested, amount of contributions, profitability, time the investment is maintained – the most important factor is time .
- Remember the rule of 72: It is an orientation to know the years necessary for an investment with compound interest to double its value. Simply, you have to divide 72 between the interest rate.
- 72 / Interest rate = Number of years
- For example, an investment with compound interest of 6%, will double in value in 12 years.
- In the same way, you can know the interest rate necessary for an investment to double its value in a certain number of years.
- 72 / Number of years = Interest rate needed
- Avoid the fashions and the gurus of turn, as well as making emotional decisions. Do not chase the successes of yesterday. Historical returns are no guarantee of future profitability. Nobody knows what the markets will do. Discipline and patience are important traits for the small investor. Fear and greed are your enemies. We must avoid “buying expensive” when markets live euphoric moments and “sell cheap” in times of crisis.
As for discipline, it is recommended to make periodic and regular contributions, even if they are small, instead of waiting for what may seem like opportune moments to invest larger amounts.
If someone offers you an investment “too good to be true” it is most likely not true. Never trust strangers who offer you unsolicited advice about investments. The CNMV has a publication on “financial bars” that are worth reading. Never compromise your money without understanding the investment and the risks involved, and remember that there is no return without risk.