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Many novice investors wonder how to start investing their savings to enjoy the highest possible returns
The world of investment can be an imposing world for people who have never been in contact with it before. A complex web of mechanisms where one day, obscene amounts of money can be made, and the following day, asset prices can plummet, resulting in huge losses. This can overwhelm inexperienced people who, although they want to make their savings profitable, wonder how to start investing.
Before embarking on this journey, it is essential to have a clear understanding of the basic rules of investing. Although the doors are wide open to everyone, walking through them without basic knowledge is not only irresponsible. It can also be a catastrophic mistake that could result in losing some or all of the money invested.
This is why many inexperienced people, regardless of their age, seek guidance on how to start investing. And although it is difficult to find absolute certainties in finance, several tips make the start of this journey more bearable. Advice that can also help you manage your investments more precisely and achieve better results.
But let’s get down to business: how to start investing?
1. Do as much research as you can
It is foolhardy to dive into any pool without first taking swimming lessons. And the financial environment is no exception. Without a doubt, those considering how to start investing first need to study the basics.
Of course, it is not necessary to enroll in a degree program in economics. However, it is advisable to read a book or publication that delves into this subject. Or, failing that, to research on the Internet about the functioning of this world and the products that interest us.
One of the biggest mistakes that can be made is to inject capital into a product without really understanding what it consists of, a mistake made by novices and veterans alike.
What are emergency funds? Why do savings lose value over time? What does it mean that a product has high volatility? How do risk, liquidity and return relate to each other? What is the role of a broker? What differentiates fixed income from equities?
People who are thinking about how to start investing should know how to correctly answer questions like these to make sure they understand the rules of the game before putting their capital at stake.
2. Define your risk profile
While the research work never stops, since it is always advisable to keep abreast of market news and trends, once this first phase is over, another crucial moment arrives for people unsure how to start investing. It is time to establish the risk profile.
This time, the questions are directed at oneself. This is an exercise in self-knowledge and introspection. To discover what you want and to define your risk tolerance, which is closely linked to your personality.
Are we afraid to look the wolf in the eye, are we comfortable in the face of danger, or do we prefer to arm ourselves with every possible layer of defense? Investors with a more risky character belong to the first group, while those with a more conservative profile belong to the second. However, this is not black and white: between the two, there is a wide range of more or less moderate investors.
When it comes to positioning ourselves in this spectrum, we must bear in mind something we mentioned earlier: the triad of risk, profitability and liquidity. If we choose to assume a higher level of risk, liquidity will be lower, and we may find it challenging to convert the money into cash. But, as a general rule, the gains will be more substantial.
On the other hand, if we prefer to keep the risk away, we will enjoy greater liquidity and more security guarantees. But bear in mind that this will probably mean sacrificing some profitability, as the gains tend to be more modest.
The risk profile is a guide for all those who are wondering how to start investing. It is a fundamental part of the skeleton of any investment strategy. Although it may vary according to circumstances, it is essential to be faithful to this axis and not be influenced by promises, however attractive they may be in the eyes of inexperienced investors.
3. Clarify the details of your investment strategy
After deciding on the level of risk, it is time to specify further the investment strategy: the plan you will follow to maximize your money.
The first step is to set an objective beyond the obvious answer: to multiply your wealth. Why do we want to know how to start investing? What do we want to achieve?
The objectives can be infinite since they depend on the desires and needs of each person: to prepare for retirement, to pay for the children’s university studies, to acquire a new vehicle, to pay the down payment on a house, to take a trip or, simply, to obtain passive income regularly.
Depending on the desired objective, the approximate period is also determined, i.e., how long the investment is intended to be maintained.
People with their sights set on the long term may leave it for years, trusting that their assets will increase in value as time passes. And those who need the money for an earlier date look for alternatives that fit their time frame.
This is also the ideal time to specify the amount to be invested, a sum that depends entirely on the investor’s purchasing power. Some allocate tens of thousands of euros, while others inject only one hundred euros. Both profiles fit the investment, from the most ambitious to the most modest.
The vital thing is to leap. It is not the initial budget that matters but how it is invested to get the most out of it.
However, it should not be forgotten that some mechanisms impose a minimum amount. This reinforces the entry barriers faced by some people who do not have that initial capital. In Inversa Invoice Market, however, it is possible to start investing with as little as twenty euros.
This series of decisions weaves and shapes the investment strategy of people wondering how to start investing. But there is still a critical step, which we will see below.
4. Choose the products you are going to invest in
What is the most relevant step in defining the investment strategy? Undoubtedly, the choice of the assets in which the capital will be injected. In other words, the investment mechanisms.
To find the most suitable option, it is necessary to thoroughly investigate all the options available on the market. One cannot make the mistake of limiting oneself to investigating the three most popular ones but must also explore the advantages of alternative financing systems to learn about all the options and know how to start investing.
According to the time frame previously established, it may be more opportune to invest in some products. Thus, savers looking for quick profits will resort to short-term mechanisms, while those not in a hurry to reap the benefits and prefer to wait may opt for long-term instruments.
At this point, it is important to know another pairing: fixed income and equities. The most conservative investors who do not want to turn their backs on security tend to buy fixed-income products: those that allow them to know in advance the return they are going to get. Some of the best-known examples are government bonds or corporate notes.
On the other hand, investors seeking higher returns tend to opt for equities. An option with more uncertainty since there is no certainty as to whether or not profits will be made. But returns tend to be higher. The most popular assets are stocks, mutual funds, currencies or commodities.
However, as we commented above, it is essential to delve into alternative mechanisms such as Inversa Invoice Market. A platform where you can finance business invoices and receive substantial profits in less than one to three months, also enjoying the interest as soon as the operation is closed.
A crowdfactoring-based solution with many advantages, focusing on the real economy and ethical investment. And its high average profitability, much higher than most products on the market, makes it an interesting alternative for anyone considering how to start investing.
5. Keep up to date every day
All savers who are wondering how to start investing should be aware that this is a task that requires time and dedication. Fixed income mechanisms do not require so much attention, but if you invest in equities, you have to pay attention to the evolution and ups and downs of the market to decide when it is best to sell the assets and reap the benefits.
On the other hand, to be successful in the investment world, it is not advisable to spend 100% of the profits but to inject these profits again to gradually increase the assets. In short, follow a reinvestment strategy.
It is also necessary to constantly look for new products that can offer more attractive conditions or returns, diversifying the total volume of money in different mechanisms to attenuate the level of risk. One of the most critical mistakes made by people who hesitate to start investing is to put all their eggs in the same basket, which can lead to significant losses.
Diversifying the capital in assets of different natures and belonging to different sectors is a very effective tactic to shield and protect the investment portfolio. In this way, even if one asset crashes in the market, the overall financial health of the investor will not be so affected because, if the others are up, they will be able to cushion the fall.
Finally, keep an eye on the latest developments in the financial sector. New technologies, for example, are modernizing it by leaps and bounds, and it could be useful to take advantage of the potential of tools such as roboadvisors.
Along these lines, Inversa has developed a high-level intelligent assistant that allows you to automate investments so that you don’t have to worry about anything. All you have to do is select a series of parameters, such as interest rate, term, type of company, amount or level of risk desired, and Ramón will take care of all the steps to help you earn money.
This is a very useful help for those less experienced savers thinking about how to start investing.