How to invest my money best

Some advice for investing without any hiccups

Fortunately, for people who save and who want to get returns on their savings, there is a huge variety of financial vehicles that they can be channelled through. Whether they are financial assets (deposits, fixed-income securities, stocks, investment funds or pension plans, among others) or non-financial assets (property, gold, art, etc.), every investor can find solutions for his or her own needs and expectations.

Nevertheless, there is no place for shortcuts when it comes to creating the right investment. Proper financial planning requires an exhaustive prior analysis to resolve questions such as:

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  • What am I saving for?
  • What is my time frame?
  • What level of savings should I aim for at the end of the process?
  • What level of risk am I willing to take throughout?

Once these important points are clarified, we can move on to defining and applying the right strategy for our goals, i.e. we will determine how to carry out the investment. To do this, it is a good idea to follow a few points of advice:

Avoid investing in anything you do not understand

A basic investment principle. If we cannot understand how a certain investment works, it is not for us.

Start in advance

Time is a very important partner in investment processes. On the one hand, it offers us the possibility to take certain risks when we have a long-term objective, and on the other it also means that our efforts are more gradual..

It is a good idea to keep in mind the 'rule of 72': this is a measurement that indicates how many years are needed for an investment with compound interest to double in value. Simply, you just divide 72 by the interest rate. So, an investment with a compound interest of 6% will double its value in 12 years.

Diversify

Another golden rule of investment that we often hear people say is 'don't put all your eggs in one basket'. In an investment process, focussing on one or just a few assets exponentially increases the risk you take, whereas spreading the investment among several assets will reduce the risk of loss.

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Invest on a regular basis

Let's suppose somebody is saving through an investment fund and has a specific objective one year to put €6,000 into it. What is better, a one-off contribution or a monthly contribution of €500 for each of those 12 months?

The answer takes us back to the last question: in the investment process, it is also convenient to diversify contributions, as this also reduces risk. In this case, the risk is making the full contribution at an inadequate purchase price.

Understand the risk-return balance

It will always be the case that aspiring to get greater returns will incur a greater level of risk. The relationship between these two variables is always direct. Ensure that you always set the risk you can take and, using this, try to maximize returns.

Be careful with the leverage effect

There are certain investments that are known as 'leveraged'. With these, the quantity actually invested is reduced, but exposure to the underlying asset is much higher. This can cause a multiplying effect in terms of losses. These investments are high risk, and only work for a very specific type of investor.

Do not get into debt

Getting in to debt in order to invest can cause unwanted effects if the result of the investment is not what you expected. Always invest within the realistic limits.

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