Investing money means taking advantage of what you have so that it pays you well in the future. Sure, there are plenty of popular sayings passed down from generation to generation that carry timeless and universal lessons about money. And there are also the tips, like this: “If your money is worth it, don’t leave it saved.” Have you already heard it?
The meaning is simple: if you know how to invest money — and not just save it — you will see that this amount increases more and more.
There is a big difference between saving and applying your money. Do you know the story that “money flies”? You are right!
Even if you have a reserve, if you do not apply that amount, it is easier to get carried away and end up breaking the piggy bank. In addition, the money withheld suffers from the effect of inflation and can lose a lot of value.
Don’t you understand any of this? Do you want to know some and make it perform?
Then follow this guide and clear all your doubts about investments!
Why should you invest money?
If you have an emergency reserve and manage to save a little each month, congratulations! You are already on the right path.
Saving or investing money is, in fact, an essential element of life. However, let’s go a little further: what if your reservation begins to bear fruit?
So that you better understand the difference between saving and investing, let’s see another popular saying: “Whoever eats and leaves, sets the table twice.” Looks good, doesn’t it?
If you make a small sacrifice at a meal, leaving a portion to eat later. In this way, you can have another meal.
But what happens if this first effort is not only reversed in one meal, but in several meals?
This is what investing is all about. After all, keeping an amount saved, without application, is a waste of your effort, since there is no significant correction in this regard.
Investments and profitability
If you live on planet Earth, you must have at least heard of a story about young people who became millionaires by investing, either in cryptocurrencies or online.
It is not by chance that these stories start from a common fact, the fact of becoming a millionaire with a small investment and that this would be possible for anyone.
But is it really that profitable to invest? Yes and no. These stories are very particular and bring many repercussions that are not the subject of this article. But of course you can make big profits if you know how to invest money.
And it is not surprising that the investment culture is growing day by day. That is why you will be surprised to know that almost all Latin American countries have one or more stock markets. And now thanks to technology, something revolutionary is happening; since you can access the Stock Exchange from anywhere in the world with just one click.
To clarify a little more, for example, suppose we have 20,000 euros and we want to buy a car worth exactly 20,000 euros. We are willing to delay the purchase of the car for 1 year if in return we obtain some profitability. Suppose we forecast inflation over the next 12 months to be 2%.
That means that the car we want next year will cost 2% more, 20,400 euros.
If we lend our money to the State, buying Treasury Bonds worth 20,000 euros, in exchange for a return equal to inflation within 1 year, the State will give us 20,400 euros, the 20,000 that we lend plus 400 interest (2%) .
The price of the car has risen to 20,400 euros but so has our investment, and now we have the 20,400 euros we need to buy the car.
To be able to simulate investments like this, just use the, in the case of Spain or check the one of your country of origin.
Oh, a note: since this example is a fixed income investment, that is, one whose profit margin is predictable — the one that offers less risk — the profitability is more stable and contained.
On the other hand, those who make variable capital investments can obtain much more significant profits. However, the risks are also more relevant.
All this must be compared with your objectives and your investor profile. Let’s understand it better!
What are your investment goals?
No one saves or invests money without: accumulating wealth, taking a trip, paying for their children’s college, etc.
Knowing and understanding them, especially if they are short, medium or long term, is very important to take more specific steps towards investment. We present them to you!
short term goals
Short-term goals are those that will be completed in the next few months or up to 3 years. Some examples:
- a trip on the next vacation;
- a big birthday party;
- a reform in the house, among others.
Those who need to recover money in a shorter period often make investments with high liquidity and low risk.
An application with good liquidity is the one that can be recovered more easily, that is, converted into cash.
This is the case for Treasury Direct securities — when you make the withdrawal request, the value falls into your account within one business day.
Investments with low liquidity are those that, even giving a great return, are less agile in this conversion.
This is the case with real estate, for example: buying a house to resell it when there is an appreciation can take a few years until you manage to find a buyer.
If you need the money in a short time, you are not going to risk much either. It is that, an abrupt drop in market rates can frustrate your plans to travel or reform the house, since there will be no useful time for a recovery.
Medium-term objectives
Medium-term objectives, in turn, are usually achieved in approximately 3 to 10 years: Some examples:
- buy a new property;
- save enough to pay for your children’s college;
- accumulate wealth;
- open a family business for etc.
They are things that can be built more calmly, and that are not so urgent.
In these cases, investments can be a little more moderate in terms of risks. Furthermore, high liquidity is no longer a key criterion, which opens up more possibilities for the investor.
long-term goals
If you want to start investing with the future in mind, like having a comfortable retirement or passing on wealth to your children, investments can already be riskier.
After all, if a stock on the stock market plummets, for example, you are not in such a hurry and you can wait a while before recovering your capital. Maybe the scenario changes completely!
Liquidity is also not that critical, as there is no urgency to get the app back. Therefore, if your funds are committed for several years, your objectives will not be harmed.
How to identify your investor profile?
Knowing your investor profile is also essential in the recipe for a good investment.
A lot comes into play here: monthly income, age, risk tolerance, needs, and much more. Learn a little about each one!
Super Conservative: the fearful
For this profile, safety is the watchword. Therefore, you prefer to invest mainly in low-risk, high-liquidity options. In fear of losing their funds, they may miss out on good earning opportunities by not diversifying applications.
Conservative: the prudent
This one takes a bit more risk than the previous profile, but still still treads very carefully.
Since you don’t like to take risks, you want to avoid surprises at all costs. For this reason, he also prefers investments with more predictable and stable returns.
Moderate: down to earth
The moderate is that investor who, although he likes to take risks from time to time and bet high on options with more chances of making a profit, still keeps his feet on the ground most of the time.
This investor profile places around 60% of their funds in conservative options and 40% in more aggressive applications.
Bold: he is cold-blooded
A bold investor is cold-blooded, and therefore risks do not scare him. He likes to keep a small portion of his funds in safer options with little chance of loss.
However, most of it goes to investments that have great chances of obtaining high yields, even meaning less security of them.
Risky: the crazy investor
It is the opposite extreme of the super conservative, the risky profile is that of the crazy investor. He takes very seriously the idea that the riskier an investment, the more likely you are to get rich!
He is the typical investor who cannot listen to the rumor that such a stock will rise because he will bet all his chips. For this reason, they often forget that it is good to have at least one safer reserve for eventual needs.
What are the main types of investments?
If this universe is totally new to you, it may be difficult for you to place yourself in front of so many economic terms.
And that is why we have prepared this brief summary of the main types of investments.
How to invest money in fixed income
Fixed income investments are more conservative, as they present less risk. They act as a loan from your application to the issuer of a security or bond — the government, private companies, or banks.
The great feature is that the rate of return is more predictable, since it is usually prefixed (for example: 6% correction per year).
There are also post-fixed rate fixed income investments, but even in these cases it is linked to some element of indexation. The most common is to take as a reference in the t
Therefore, there are no big surprises in yields, which fluctuate more smoothly.
Examples of fixed income investments include:
- Savings Bank Account: the famous savings books, which yield between 4% and 6% per year;
- Direct Treasury: works from the purchase of federal public capital (as if it were a loan to the government, in exchange for interest)
- Bank Deposit Certificate (CDB) and Bills of Exchange (LC): they also function as loans, but this time due to securities issued by banks and financial institutions;
- Obligations: in this case, they are debts of private companies. The scheme is the same — you “lend” money by buying a bond and earning interest;
- Letters of Credit of Credit (LCI and LCA): respectively, these are mortgage and agribusiness securities. The idea of this type of investment is very similar to the previous ones.
How to invest money in equities
Equity investments, unlike fixed income investments, do not have pre-fixed or post-fixed rates at any benchmark. In this case, the investor makes the requests without knowing for sure when and how much he can earn.
Although they are a bit more risky and unpredictable, these investments can produce very interesting and higher returns than fixed income.
To get the right application, the advice is to study a lot about…
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