Are you thinking about investing your money? We explain everything you need to take into account to choose the best investment products according to your risk profile.
The Oscar for the best film takes a single production every year. No matter how wonderful the candidates in the contest, there can only be one winner. It is not the same with a hypothetical Oscar to the best investment, since the variants are so many that it is almost impossible to answer the question of which is the best.
The different profiles of investors, as well as the variety of products on the market with characteristics of profitability and risk for almost all tastes, lead to that conclusion. However, there is a series of guidelines, approaches and information that you can and must take into account if you are going to put your money in whatever.
What is your investor profile?
Before deciding to commit your savings, the first thing you should do is analyze yourself. Yes, forget for a moment about the product in which you think you can invest and focus on specifying your own personal objectives. For this, we recommend that you ask yourself the following questions:
How old are you, what is your socioeconomic and family situation and what savings generation capacity do you possess?
What assets do you accumulate and with what degree of diversification does this account? Obviously, distributing between different financial products is one of the best ways to limit risk with reasonable returns.
- How much do you want to spend on the investment?
- How long do you want or have the capacity to keep capital immobilized?
- What performance expectations do you have in mind?
To what level of risk are you willing to assume in exchange for those benefits? Not all people have the same resistance, both from the psychological point of view and from a purely practical prism: the greater the risk, the more time and dedication you should devote to monitoring your investments.
The last question will lead you to determine if you are a risky investor – you control the financial world and you are looking for high returns despite what you can lose – conservative – your priority is to keep the capital invested, even if you earn less – or moderate, which is halfway between the first two.
What is the best investment?
Once you have the answers to the previous questions, it is time to think about the best products in which to invest your savings. As a general approach, remember that the relationship between profitability and risk improves the longer the time horizon. In the same way, never forget that investment with zero risk does not exist.
Also, bear in mind that the decision to invest must be made responsibly, with all the necessary information and, although it seems obvious, with common sense, as advised by the National Securities Market Commission (CNMV).
To this we must add that “nobody hard to pesetas” (remember the pyramid schemes) and that, if you do not know a product in depth it is better to accept that you do not know it and opt for another investment or seek professional advice. Thousands of investors would have saved millions and millions of euros just by following these simple guidelines of behavior during the crisis.
What investment is it, how does it work and what do I expect from it?
After having determined your investor profile, it is up to you to cross your own data with what you obtain from the analysis that you must also do to the product in question. Here are the key questions recommended, again, by the CNMV:
- Does this investment match my objectives? Is it right for me?
- How will I get the returns (through the payment of dividends, interest, etc.)?
- What is the taxation of the product? Beware of taxes, which can make you feel disgusted.
- How much will I have to pay for subscription and reimbursement commissions or for purchase and sale, as well as for administration and custody expenses?
- Is it a liquid product? Is it negotiated in an organized market? Will it be easy to sell it if I need the money?
- What are the specific risks of this asset? How much can my losses amount to in the worst case?
- Who supervises the product? If what you are offered is not under the control of any institution (the CNMV itself, the Bank of Spain or the General Directorate of Insurance and Pension Funds), forget it. So clear.
Where to invest your savings?
More concretely, here are ten more or less classical possibilities in which you can invest your savings. Once again it is necessary to insist that investment with zero risk does not exist and that the following advice is valid for the current situation.
- Housing: With the eUribor in historical lows and rent prices also on the rise, many families are mortgaging again. As a consequence, the real estate market is reactivating. There are also those who buy to sell later with revaluation or to rent, precisely because of the notable increases in rents. Long-term investment and, in principle, for a conservative profile.
- Other real estate (commercial premises, garages, etc.): You can apply approximately the same criteria as in the previous point, although the location of the property is especially relevant. However, in both cases you must have considerable capital.
- Shares: These are investments with a high degree of liquidity, a high potential for profitability in the medium or long term and, as is logical, an important risk. The stock markets are hypersensitive to a multitude of factors that are beyond the control of practically all people, not to mention all: political, economic, territorial, social, conjunctural, legal, sectoral or related to the title itself (mismanagement) , negative economic results and even scandals of corruption, sexual or that influence in any way on the reputation of the company).
- Bonds: That can be issued by public or private debt. The advantages are clear: you do not need technical knowledge and the investment is low risk. Although lower than in the case of stocks, the potential for profitability is high.
Investment funds: One of the great advantages of this financial instrument is that it allows the individual investor to access any asset and market through a professional. In general, you should bear in mind that a fund is more focused on long-term investment.
- Deposits: They have no secrets and are safe investments, but, in general, nowadays, they offer meager returns.
- Pension plans: You do not need hardly any knowledge of the market, they have favorable taxation (less at the time of rescuing them) and, starting in 2025, it will become a much more liquid product.
- Gold: Neither in this case do you require great financial knowledge. In the long term it is a safe investment.
- Business: If you put your money in a company, it must be because you know the business very well, the sector in which it operates and the growth potential it presents. In this field it is also possible to go to a franchise.
- Works of art and collectibles: Paintings, sculptures, coins, jewelry, etc. It is, in any case, articles that you expect to be revalued over time. It is advisable that you either have knowledge of the market in which you enter or that you have professionalized and trusted advice. In addition to that you can take in selling the object … With everything, it can be a profitable investment in the long term.