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Combining different investment mechanisms allows savers to diversify investment strategies and reduce their risk
You have probably heard that «every Spaniard is a national coach». This famous phrase refers to the fact that many people believe they would be better at managing the national soccer team than the professional who holds the position. They would choose better players, prepare better for tournaments and design more effective tactics. In short, they could create a strategy to win the World Cup or the European Championship.
This anecdote shows that we are constantly living with strategies and are all used to designing and implementing them in many areas of our lives. Thanks to the digitalization of finance and the emergence of online alternative financing platforms, we can also create our investment strategies without having to delegate this task to managers. But what should be taken into account when doing so? A fundamental principle is that it is advisable to diversify investment strategies, to avoid betting everything on a single winning horse.
If a soccer coach focuses his entire plan on the performance of a star player and he gets injured, his whole strategy could be thrown into disarray. In the financial arena, diversifying investment strategies helps to avoid putting all your eggs in one basket and reduce the risk you take when investing your money.
Below, we will unpack some of the keys to consider when diversifying investment strategies and analyze why a crowdfactoring platform such as Inversa can greatly help investors who wish to implement strategies in which their money is invested in companies of different sizes and economic sectors.
Capitalizing on investment market diversity
The world has undergone enormous changes this century associated with the technological revolution. And the financial sector has not remained on the sidelines of these transformations. Today, a person can make investments from a cell phone through traditional banking apps or crowdfactoring, crowdlending, or crowdequity platforms.
Both the gain in autonomy when it comes to investing, as well as the greater diversity of players in the financial sector and the investment mechanisms they offer, have led to a fundamental paradigm shift.
Diversifying investment strategies has always been challenging. An individual can combine investment in:
- Treasury Bills (Government)
- Stocks and shares (Large companies)
- Pension plans
- Crowdfactoring (Real economy companies)
All these investments are not exclusive but complementary and allow diversifying investment strategies, financing different actors through products with other characteristics: short-term or long-term, equity or fixed income?
If the market offers us a wide variety of investment mechanisms, why not diversify investment strategies by adapting them 100% to our objectives?
Combine different products and sectors to achieve your objectives
When designing investment strategies, it is essential to consider the objectives pursued. That is to say, how much profitability is expected to be obtained, in what period, what kind of companies you want to finance, in what economic sectors you wish to invest…
Depending on the objectives established, plans can be designed to diversify investment strategies and achieve the desired results.
As we pointed out in the previous section, there is a wide range of investment mechanisms, from the products offered by traditional financial institutions to alternative financing methods such as crowdfactoring. When selecting the investment products to be acquired, it is essential to never lose sight of the fact that:
- It is crucial to understand the investment mechanisms.
- You must have all the necessary information to analyze whether an investment suits your objectives.
Digitalization has also impacted these two issues since gathering information online, and specialized publications are now more accessible.
In addition, powerful technological developments, the use of Big Data, and advanced algorithms have enabled financial institutions to offer a precise analysis of the behavior of the companies in which they invest and to provide an accurate credit rating.
All of this results in a commitment to diversify investment strategies, combining products with different characteristics and investing in multiple economic sectors. In addition, about the latter, we must maintain sight of the rise of sustainable investments. In other words, savers invest their money in companies that meet ESG criteria or carry out their activities in critical sectors to build an environmentally and socially sustainable productive fabric.
Moving successfully between return and risk
If there is a central relationship regarding investments, it is undoubtedly between profitability and the risk of a transaction. If we greatly simplify this relationship, we could conclude that the higher the risk, the higher the promised return. Whereas if the risk is lower, the profitability will also be lower.
Any investment strategy must be based on a series of objectives, as we pointed out earlier, but also on the investor’s risk tolerance. Some people are more aggressive and prefer to take more risks for higher returns. On the other hand, other investors may choose to be conservative and have the utmost certainty that they will recover their investment, even if the return is low.
By diversifying investment strategies, savers can combine products with a higher level of risk with other mechanisms that offer a minimal level of risk. If a person decides to invest all his or her money in a single product, the possibility of combining more profitable investments with less profitable ones is discarded.
On the other hand, diversifying investment strategies opens the door to combining more profitable but riskier operations with others that offer a lower return but guarantee a return on investment.
Limit the risk of your investments
Risk is precisely the determining factor when deciding to diversify investment strategies. Putting all your eggs in the same basket can be a successful decision if the investment turns out well and the return obtained is very attractive, but it can also lead to severe problems for the investor.
Therefore, when designing investment strategies, it is advisable to opt for diversification, especially for savers who need to be more professionally engaged in making investments or working in the financial sector.
Even if you have all the relevant information about an operation and it offers guarantees and adapts to your objectives and needs, you should not allocate all the money you wish to invest.
Diversifying investments allows you to take certain risks and, at the same time, invest in safer products. In such a way, you can achieve attractive returns with some of your investments and, at the same time, invest part of your money in products and companies that offer you maximum confidence.
Risk has always been an element that has discouraged savers from investing their money.
Fortunately, nowadays, small investors can find out in-depth about all investment products before contracting them, and, in addition, they have gained autonomy and have more investment mechanisms at their disposal, such as crowdfactoring, for example.
Inversa is a platform that helps you diversify investment strategies
Inversa Invoice Market, a crowdfactoring platform that serves as a meeting point between companies in the real economy and thousands of small investors, can be a good ally when diversifying investment strategies and complementing traditional products with alternative channels.
In the Inversa marketplace, savers can invest from as little as 20 euros and diversify their money in as many operations as they wish.
Through this platform, hundreds of companies in the real economy operating in multiple sectors (canneries, food, packaging, footwear, laboratories, energy…) offer their issued but uncollected invoices to obtain liquidity in the short term.
In exchange for investing in these invoices, savers obtain a return once the invoices have been completed and recover their investment when the drawee company pays the invoices.
The invoices in which they can be invested have different yields, maturities, and credit ratings and are to be paid by companies from multiple economic sectors. This variety is crucial in helping investors diversify investment strategies, combining invoices with different characteristics and limiting the risk they take when investing.
What’s more, Inversa also offers insured bills. In other words, bills have the guarantee that insurance companies will take care of the return on the investments in case the businesses do not pay the bills.
Why not invest your money in a pension plan, a venture capital fund, stock market shares, and companies’ invoices in the real economy? Thanks to platforms such as Inversa, you can complement your investments and diversify your investment strategies to limit your risk while achieving your goals.
Put all your eggs in a different basket and avoid being left with none if the basket falls to the ground.