The Process Of Investing Money
As the saying goes, no one is born taught, much less knowing how to invest. Currently, with interest rates where they are, inflation clearly exceeding the rates offered by banks for deposits, as well as new needs, many people find themselves in a complex situation.
Until relatively recently, normal families have preferred deposits for their savings. Today, as I mentioned earlier, many citizens are facing a major decision: to become investors when they have always been savers.
Where To Start
Perhaps the first thing is to be clear about what is meant by a saver and what is meant by an investor. A saver puts his or her money in products that offer maximum security and, moreover, allow access to them as quickly as possible. However, behind this security, savers do not take into account whether the rate at which they invest is higher than inflation or lower, as is the case at present. In this case, the saver (due to the erosion effect of inflation) will be losing purchasing power. It is very easy to understand this through an example:
What happens if we leave the price of a coffee saved, years later we withdraw the money and we see that due to the rise in price with the money saved we can only opt for half a coffee? The above question is the reason that leads families to start investing. By investment we mean buying financial assets in order to be able to not only maintain the purchasing power, but more importantly, to increase it, by properly managing the time horizons of the investment, the risk profile and the understanding of how these assets work.
For savers the products of choice are: current accounts and bank deposits. For investors, on the other hand, their preferences are for stocks, bonds, mutual funds, pension funds and savings insurance, among others.
What Are The Steps
Once the doubt has been cleared up, it is convenient to focus on the steps to be taken in order to start learning how to invest. To do this, the steps to take are:
To prepare a financial plan where the patrimony of the family is contemplated, the income and expenses in detail and which are the objectives that the person or the family wants to achieve in this life.
The next step, very important, to pay the debts that have very high interest as soon as possible.
Start saving to invest as soon as possible, since time is an ally to increase the results and the magic of compound interest, which is that interest is added to the initial capital, and thus in each interest payment, the new yields are calculated on a higher interest. In addition, diversification reduces the risk involved in any investment.
Risk is precisely the barrier that must be overcome in order to move from the (apparently comfortable) bank deposit to the assets in which investors invest. Every investment involves risk; risk is the price to be paid to increase the return on savings. Therefore, because there is risk, it is very important that when it is carried out in assets that we understand how much we can lose, for how long we can be losing and remember that, in the long term or even in the very long term, the results are much higher than those granted by the deposits.
However, the risk is attenuated and can be adjusted to the exposure that each person wants. This is possible through diversification or, as our saying goes, “do not put all your eggs in one basket”. Although this diversification does not guarantee not to suffer losses, they will not be as much as if the investment had not been made. Also, something not always emphasized: investors protect themselves by putting money consistently into their investments over a long period of time.
Always remember the idea that underlies every investor’s head: when your money is put to work you will receive it with added interest or results. The money invested generally generates an income; that is, just as you work and receive an income for it, your money is working for you, generating an income for you.
On the other hand, you learn through experience and from teachers or professionals, such as educators and financial planners, who will help you from the very beginning. Through education you will understand and distinguish the characteristics of each of the different alternatives, as well as their taxation.
The planners will help you to modulate your risk profile, suggesting which assets are the most convenient, helping you to decide which is the offer you have received and which is the most convenient for you. And finally, a piece of advice so that you do not fall into mistakes as has happened recently. Get in touch with us now!