How do variable-income investments work?

For the most risk-tolerant savers, investment in variable-income securities (also known as equities) can represent a good opportunity to get the most out of their savings
Equity is a type of investment where there are no guarantees that you will recover the money you invest. Likewise, the amount of any potential returns is not guaranteed or known in advance. It is even possible for these returns to be negative, even to the extent where the money initially invested may be lost entirely. This is because the returns from variable-income investments depend on a variety of factors, such as the growth of the company being invested in or its economic situation, the behavior of the financial markets, etc. Financial exchanges and markets are sensitive to any changes that are interpreted in a positive or negative way by investors. Therefore, these markets act as a sort of thermometer for the economy.
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Corporate stocks are a typical example of equity. When investors purchase shares in a company, they acquire a series of rights that includes the right to collect dividends. If the company earns profits during a given fiscal year, it may distribute some of these earnings to its shareholders in the form of dividends, as long as this is agreed upon at the General Shareholders' Meeting. Shareholders also acquire other rights such as the right to vote, the right to access information, etc.

Variable-income securities are the only assets that can overcome inflation. However, this tends to occur over extended periods of time. This is because, over the long term, there is a high correlation between returns from variable-income securities and a country's economic growth. However, from a short-term and medium-term perspective, it is possible to experience volatility that will affect the performance of the investment.

How can small-scale investors put their savings into variable-income securities?

Individual investors are not allowed to make trades directly on the stock exchange. Instead, they must operate through a financial intermediary that is responsible for executing the buy/sell orders submitted by its clients.

All transactions taking place on Spain's stock exchange are supervised by the country's National Securities Market Commission (the CNMV in Spanish), which oversees the existence of transparency, proper establishment of prices, and protection of investors.

Another common way for investors to gain access to the variable-income market is through investment funds. These funds are savings instruments that pool the contributions of a large number of investors, with the management entity then investing this money in a variety of assets such as corporate stocks. Individuals who put their savings into an investment fund are hoping to earn returns on their investment, while also seeking security, liquidity, and professional management for investing in the securities market.

Therefore, when deciding whether to invest in variable-income securities, it is advisable to seek advice from a bank or a professional financial advisor, since they can offer you customized solutions based upon your investment profile and specific objectives.

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At all times the investor must remain aware of the fact that, in contrast with fixed-income securities where the risk is low and returns tend to be lower as well, variable-income investments can be subject to major variations in the markets, which means that they are exposed to higher risk. However, another advantage of variable-income securities is that the money invested in corporate stocks and investment fund shares can be converted back into cash much more quickly if the need arises, since these instruments have a higher degree of liquidity than that associated with fixed-income instruments.

Any investors interested in getting involved with variable-income securities should consider the following steps:

1. It is best to invest in variable-income securities over extended periods (3 years or more).

2. It is a good idea to invest in a diversified range of variable-income securities. In other words, try to avoid securities traded on a single stock exchange, or issued by companies in a single industry, or those with a single investment style. This diversification is important, and it is achieved by investing in a wider variety of each type of asset.

3. It is preferable to invest in variable-income securities by making regular contributions (e.g., month-to-month) rather than making larger investments more sporadically. This allows for better diversification in relation to time.

4. Consulting a financial adviser will help you to choose the best variable-income funds for your needs. It will also make it easier to monitor your investments.

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