Investing is an excellent way to prevent growing poorer in times of inflation. Still, you should never invest money that you don't need right away, and you should diversify and develop a strategy, among other things.

Financial Education Day is observed today, November 4th. The first thing newcomers to the investment world should realise is that investing is not a simple undertaking, nor is it an activity confined solely to economists or those with a lot of money. You can start investing with a single euro to try to make your money grow, especially during inflationary times. Money quickly loses purchasing power as inflation rises. Finletic's president, Rafael Juan y Seva, points out that "To save means to forego a certain amount of money now to have it later. The money saved, on the other hand, does not grow."


Of course, if you decide to take the plunge, it's a good idea for the savvy investor to consider a few fundamental pointers to avoid making the most typical blunders. Experts say it can gain that information by being informed and gradually gaining experience.

 

1. Invest to avoid losing purchasing power: According to Rafael Juan y Seva, "investing" entails "allocating the money saved to the purchase of assets to attain future profitability, which is in many circumstances questionable." Inflation, on the other hand, is the silent enemy of savers. For example, if you have 100 euros and assume a 2% annual inflation rate, you can only buy the equivalent of 98 units with that 100 euros. Even if the 100 units are maintained, the purchasing power will erode with time. To avoid becoming impoverished over time, the only option is to invest the money saved.

 

2. Diversify your portfolio (don't put all your eggs in one basket): Investing is, at its core, risk management. Diversification is crucial (countries, sectors, asset classes, currencies...). To safeguard yourself against the possibility of irreversible financial loss, spread your investments out in a slightly linked manner. Rafael Juan y Seva states, "Risk management must take precedence above prospective revenue."

 

When you strive to maximise profits, you can sometimes take unanticipated risks and lose a significant portion of your investment. When it comes to investing, there are two sorts of structural risks: the first is that you will spend a significant amount of money, and the second is that you will make a bad investment and lose all of your money. It must avoid the second at all costs. Therefore, when beginning to invest, it is recommended that most of the investments be liquid to have space for manoeuvring if cash is required due to unforeseen circumstances.

 

3. Have clear objectives: Because heritage is a means to an end, it must serve the investor's goals rather than the other way around. Knowing what you want to achieve is far more significant than looking for a collection of "excellent" assets to make a lot of money. When you have a lot of chances to win, you also have a lot of chances to lose. As a result, boosting profits isn't necessarily the primary goal.

 

Because investors may have a variety of objectives, it is critical to start by reflecting on the objectives and needs to be satisfied. For example, buying a home, contingencies, paying for tuition, retirement, philanthropy, and so on. Specific objectives must be specified in each circumstance, depending on the aims to be met. This will aid in the division of a "large problem" (our lives) into more minor, more manageable "problems" (concrete goals).

 

4. Define the time horizon: The objectives will be transformed into investing parameters once they have been determined. Investing in the short term versus the long term is not the same. Investing in maintaining one's level of living, for example, would be part of a short-term goal (12-18 months), where the nominal value is paramount. Availability takes precedence above anything else. If you wish to fund a professional project, your investment portfolio should improve over time (18 months to 5 years) to keep your purchasing power. If intergenerational wealth transmission is desired, for example, the investment must be long-term, with the goal of growth above inflation, expenses, taxes, and increased profitability.

 

5. Decide on a strategy: Financial investments are the most straightforward option for a novice investor. They are traded on organised exchanges and provide exposure to any corporation or debt issue globally. The most well-known vehicles are investment funds, which provide professional, regulated, and cost-effective access to several asset classes (monetary, fixed income, and variable income).

 

There are numerous funds for each asset type, with investments starting at 10 euros instead of the more significant amounts required to access real estate or businesses. Furthermore, they allow tax payments to be deferred until the decision to sell is made, and they are easier to diversify than direct stock and bond purchases when it comes to risk management.

 

The final strategy will be determined by the objectives to be met: amounts, knowledge, and skills of the investor; however, investing through an investment policy and managing risks will not only prevent the investor from becoming poorer over time but will also allow the investor to increase their inheritance.

 

6. Don't overinvest or over negotiate: The first rule of stock market investing is to invest just what you don't need because you could lose your entire investment in the worst-case scenario. Therefore, you need to invest money that isn't required shortly. Furthermore, according to BBVA, repeatedly entering and exiting the market raises the cost of operations and results in losses when commissions and other costs associated with stock market operations are factored in.

 

7. Cut losses: According to the principle, you should let your earnings run while cutting your losses. In other words, wait as long as you can when the stock price rises, but act swiftly when the stock price is falling. On the other hand, the majority of people do the exact opposite. The first step in every operation is defining the limitations one is willing to accept.

 

8. Don't be carried away by emotions: The investment portfolio may inevitably lose value over time, but in these instances, it must avoid rash judgments, and it must prioritise the strategy.

 

9. Be wary of rumours: It's usual for new investors to seek advice from more experienced investors via forums and other means. And now comes the most typical blunder: relying on shaky information or making decisions based on rumours. Learning to distinguish between genuine and unreliable sources of information is likely the most difficult. Still, it is also the most crucial if you want to pay attention to the voices that surround the market. Analysts and their recommendations are in the same boat. According to the BBVA website, not all of them will conform to the investor's strategy, and thus not all of them will be valid for their activities.

 

10. Learn about new options and alternatives: In addition to the traditional options of investing in products advised by banks through their brokers, new options such as internet brokers and Robo advisers have developed. According to the financial portal HelpMyCash, online brokers are businesses that act as intermediaries in the realm of finance. "You can use them to invest in mutual funds, stocks, and other items. Commissions are often modest, and some low-cost brokers even allow you to trade without paying commissions on purchases and sales, "they assert. Robo advisors, on their part, Automated investment managers are companies that automate essential procedures and provide clients with a portfolio tailored to their risk tolerance and profile. They use a computer system that is set up based on a team of investment specialists' expertise, strategy, and experience.

 

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