Which is a day dedicated to spreading financial literacy. People who are new to investing should be aware that it is not an easy undertaking, but it is also not something that it should limit to economists or those who have a lot of money to invest in the first place. You can start with a single euro and work your way up to make the capital lucrative, which is especially important during times of inflation. When inflation is rampant, money's purchasing value rapidly diminishes. Moreover, as Rafael Juan y Seva, the president of Finletic, observes, "To have money in the future, one must sacrifice a certain amount of money in the present. The money saved, on the other hand, does not grow."
Of course, if you decide to proceed, the prominent investor needs to keep in mind several fundamental guidelines to avoid making the most typical blunders. First, a certain amount of investment knowledge, according to experts, can be gained by being informed and gaining experience slowly and steadily.
To avoid losing purchasing power, one should invest. According to Rafael Juan y Seva, "Investing entails devoting money saved to the purchase of assets to attain future profitability, which is in many cases questionable." Inflation, on the other hand, is the unseen adversary of savers. For example, if you have 100 euros and assume that inflation is 2 per cent each year, you will only be able to purchase the equivalent of 98 units with that 100 euros. Even if the 100 units are maintained, the purchasing power will diminish with time. The only way to avoid becoming impoverished over time is to use the money you have saved into something productive.
Diversify (don't put all your eggs in one basket): Investing is really about risk management in the long run. Therefore, it is critical to have a diverse portfolio (countries, sectors, asset classes, currencies...). The best method to protect yourself against the risk of permanent financial loss is to distribute your investments in a way that is only minimally connected. The importance of risk management over future income cannot be overstated, according to Rafael Juan y Seva.
When attempting to optimise profitability, it is possible to become entangled in unforeseeable hazards and lose a significant investment. When it comes to investing, there are two sorts of structural risks: the first is that you will spend a considerable sum of money, and the second is that you will make a bad investment that will cause you to lose all of your money. It must avoid the second option at all costs. When starting to invest, it is recommended that most of the investments be liquid, so there is room for manoeuvring if cash is required in an unexpected occurrence or circumstance.
3. Establish clear objectives: Because heritage is a means to an end, it must place it at the service of the investor's goals rather than the other way around. Identifying your goals and objectives is far more significant than searching for a set of "excellent" investments that will provide a lot of income. When you have a lot of chances to win, you also have a lot of chances to lose—because of this, increasing profits is not usually the primary priority.
It is critical to begin by considering the objectives and requirements that must be satisfied because investors may have a variety of purposes, such as purchasing a home, preparing for contingencies, paying for college, retirement, philanthropy, and so on. According to the objectives that need to be achieved, it must define individual objectives in each circumstance. Using this method, we can break down a "large difficulty" (our life) into more minor, more manageable "problems" (concrete goals).
Establish the time horizon: Once the objectives have been established, it will convert them into financial criteria. There are significant differences between investing in short-term and long-term time horizons. For example, investing in maintaining one's standard of living would be part of a short-term goal (12-18 months), where the emphasis is on retaining the nominal value of the investment. Availability takes precedence above anything else. If your goal is to finance a professional project, your investment portfolio will improve over the medium term (18 months to 5 years) to preserve your purchasing power. If, for example, intergenerational wealth transmission is desired, the investment must be long-term in nature with the goal of growth above and beyond inflation, expenses, and taxes, as well as increased profitability.
5. Decide on a strategy: The most straightforward approach for first-time investors is to make financial investments. You can invest in them since they are traded on organised markets and provide exposure to any firm in the globe, including those with debt concerns. The most well-known vehicles are investment funds, which provide access to several asset classes (monetary, fixed income, and variable income) in a professional, regulated, and cost-effective manner while maintaining high-performance standards.
There are numerous funds for each asset class, with investors able to contribute as little as 10 euros instead of the more significant investments required to gain access to real estate or corporations. Furthermore, they allow the payment of taxes to be deferred until the decision is made to sell, and when it comes to risk management, they make it easier to diversify than it would be if one purchased shares or bonds directly.
The final strategy will be determined by the objectives to be achieved, as well as the investor's knowledge and skills; however, investing through an investment policy and risk management will not only prevent the investor from becoming poorer as time passes, but it will also allow the investor to increase their inheritance.
The first rule of stock market investing is to invest only the capital that is not required because, in the worst-case scenario, it is possible to lose the total amount of money invested. The second rule of stock market investing is to invest only the capital that is not required. To invest money that is not required in the short term, you must first determine how much money you have. Furthermore, according to BBVA, repeatedly entering and exiting the market raises the cost of operations and results in losses when all of the expenses associated with stock market operations, such as commissions, are taken into consideration, resulting in losses.
They allow profits to run their course while cutting losses is recommended by the theory. In other words, hang out as long as you can when the stock's price rises, but sell as soon as possible when the stock's price is falling. The majority of people, on the other hand, do the opposite. Before embarking on a surgical procedure, it is necessary to assess the level of handicap that one is ready to accept.
Keep your emotions under control: Your investment portfolio may inevitably experience a decline at some point throughout time, but in these situations, you must maintain control over your emotions and remain focused on the approach.
It is usual for inexperienced investors to seek advice from more experienced investors through forums and other channels. Avoid believing rumours. Lastly, we come to the most prevalent blunder: relying on shaky information or conducting business based on rumour. When it comes to paying attention to the voices surrounding the market, learning to distinguish between legitimate and unreliable sources of information is likely the most difficult challenge, but it is also the most vital. The same may be said for analysts and the suggestions they provide. They note on the BBVA website that not all of them will conform to the specific strategy of the investor, and, as a result, not all of them will be valid for their operations.
Identify and investigate alternative investment possibilities and strategies: Besides the traditional options of investing in products advised by the banks themselves through their brokers, additional alternatives have emerged, such as internet brokers and Robo advisers. According to the financial portal HelpMyCash, internet brokers act as mediators in the realm of investment. They are described as follows: "You can use them to make investments in mutual funds, stocks, and other items. Commissions are often modest, and some low-cost brokers even allow you to trade without having to pay commissions on both purchases and sales. "They have a point. Robo advisers, on the other hand, are automated. The term "automated investment managers" refers to businesses that automate certain operations and provide clients with a selection of portfolios tailored to their risk tolerance and profile. They operate on a computer system that has been designed by the knowledge, strategy, and expertise of a team of investment specialists.
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