From here, there is no doubt that the first bridge to cross is to put together a budget and set goals. This should not be a “task” on a Sunday in which one is bored, but rather it is a “job” that must be taken responsibly, with perseverance and methodology over time. Nothing is magical… and there is little without effort.
The organization of this first step should ideally lead us to have savings. Concept that, in a first definition, is the surplus of income that we have left after expenses. While investment, which is where we are going to focus, is to seek to enhance that surplus. In other words, investing (in financial assets, for example) has the goal of increasing those savings over time; or failing that, seek that these savings do not lose their “purchasing power”.
Now, when deciding to put together an investment portfolio, we believe it is interesting to take into account four steps:
OBJECTIVE
What am I going to invest for? I want to preserve my capital (protect it from inflation), seek a return (for, for example, a vacation) or make it grow in the long term (for my retirement, or my children’s education)
TERM
The investment horizon, or the term, in which I am willing to maintain my investment. It depends on the need for those savings.
RISK
Analyze my risk aversion or tolerance; that is, the level of risk I am willing to take. It is related to my attitude towards the uncertainty generated by the future result of that investment.
PERFORMANCE
It is the expected return on those investments. Let us remember that the return or expected profit has a generally inverse relationship with the associated risk.
What can help me “order” to answer these steps? My investor profile. It will help you define your attitude towards the different investor options, and choose which one is the most suitable for you. Why? Because it will assess your tolerance for risk, knowledge and experience, objective, deadline.
At this point, it is good that you know that there are investments for all types of profiles -whether very conservative (or you don’t want to expose yourself to losing part of those savings for a decision), or very aggressive (which would mean that, in order to make them grow strong, you are willing to lose part of them) -.
Classifying the different financial assets from this place can be, as a first approximation, very useful for those who are starting out. Thus, in a wide universe we can find very conservative options such as FCI T+1 or Money Market, or some very short-term Treasury bills, which seek a certain interest rate. These last ones, and saving differences, can be seen as an option to a traditional fixed term. The probability of losing part of the savings in the process is very low.
While, in contrast, we can mention the actions, Cedears or what are called derivatives. In the latter, for example, we speak of futures (a contract to buy or sell a specified amount of an underlying asset at a specified price) and options (a right to buy or sell a given asset at a set price and date). Both concepts deserve much more explanation, but the important thing here is to understand that the associated risk can be (very) high.
That said, and by way of conclusion, The key is to understand that first putting your finances in order, then saving and investing them can make a difference when it comes to achieving your goals. The second point will be to seek good advice that identifies your profile, such as needs, and helps you put together a good strategy. Always knowing that the options are there, and that the decision is yours.
Director of IPP.
Source: Ambito
