Where to invest your money

Reasons to invest your money

Before considering investing your money, you must be sure that you want to do it. Everyone who makes this decision does so for a reason. What is your reason for investing?

To begin to understand the importance of investing, here are some of the most important reasons to start investing your money:

1. You make your money grow

Leaving your money in the bank is not always a good option because the interest rate they usually offer is around 3% per year, while with other investment vehicles (bonds, shares on the stock market) you can generate a better return on your investment in the medium and long term.

2. You save for the future

No matter what you are saving for, it may be for your retirement, the trip of your dreams or the future of your children, investing will help you get closer to achieving those goals. As long as you do it the right way.

Taking advantage of these investment instruments to beat the financial system will not only allow you to have more income in the future, they will also give you peace of mind and economic stability in the present.

3. Obtain high profitability

Investing is not only about obtaining variable income or increasing your income, it is also about supporting new companies or startups to generate new technologies and new business models. You will obtain greater profitability and you will be supporting entrepreneurs to realize their vision to change the market in the future.

To make money grow, you have to put it in a place where you can earn a high rate of return. The higher the rate of return, the more money you will earn. Investment products tend to offer the opportunity for higher rates of return than savings accounts. Therefore, if you want the chance to get more out of your money, you should explore the possibility of investing it.

4. Saving for retirement

While you work, you should save for retirement . One of the best ways to do this is to invest in stocks, bonds, mutual funds, real estate, businesses, jewelry, or put the money into time deposits or mutual funds. And once the time comes to retire, you will be able to benefit from the funds obtained from these investments if you invested wisely.

What to take into account to invest

Investment objective

You must know the reason why you want to save or invest, or postpone your consumption today, for the future, to go on vacation or buy a car.

Tolerated risk level and desired return

You should assess your level of tolerance for variations associated with the price of assets vs. what you expect to gain from the investment.

For example, an investor with a low level of risk tolerance would probably not invest in shares given the volatility of their price, even though this way they could obtain a higher return. The level of risk tolerated is a characteristic of each person and the objective of the investment.

In this sense, it is relevant to know that there are instruments with different levels of risk and, therefore, different levels of associated profitability. For example, an instrument issued by the Central Bank It is less risky, but the associated profitability is lower than other investment alternatives.

Liquidity of the investment

It is the degree of convertibility of the asset into cash without affecting its value. This variable is associated with the moment in which you want to withdraw the investment.

As in the previous case, it must be borne in mind that there are instruments with different degrees of liquidity.

As an example of high liquidity, we can cite the shares that are traded on the stock market and that have a stock market presence. If the share has high liquidity, the sale will probably be made at the value at which it is quoted.

Investment fund shares they have been shown to be less liquid, if we consider that the liquidity of these quotas is related to the greater or lesser speed with which any investor can buy or sell this instrument, maintaining the market price.

Investment terms

It is a variable that is directly associated with the objective of the investment.

Intermediate flow needs

It refers to the need for periodic flows or not, that the investor has. In this regard, it should be noted that there are instruments that pay intermediate flows, others unknown and others only at the end (Examples: mortgage bills, shares, zero coupon bonds or fixed-term deposits).

For example, if the investor invests in shares and wants to receive cash flows, he should choose the company that contemplates a stable dividend policy.

Market access

It refers to the possibility of buying or selling an instrument in the primary and secondary market. In the first there are restrictions on the transaction, for example the sale of promissory notes by the Central Bank and in the secondary there are restrictions by amount, for example, to access the stock market, the brokers require a minimum capital from the investor.

Units of value and resetability

The unit in which the instrument is expressed can be UF, CPI, US$, etc.

An investor, according to his requirements, can choose one type of indexation instead of another.

For example, an exporter who must pay in dollars, you may want to invest in that currency to protect yourself from exchange rate fluctuations.

Costs associated with the investment

To make certain investments, it is sometimes necessary to incur a financial cost, for example, when investing in a mutual fund, a remuneration must be paid to the management company and, in certain cases, a placement commission.

Another example is stockbrokers., who charge commissions for stock brokerage.

Taxation of investments

It is important to analyze the tax to which the income generated by the investments is affected, as well as the tax benefits that they grant.

Safeguards and guarantees

There are instruments that have specific payment guarantees, in case the issuer cannot meet its obligations.

For example, term deposits in national or foreign currency are guaranteed by the State for 90% of their total amount, with a maximum payable limit of 108 UF, an amount that considers all deposits maintained in the financial system and for one time. in a calendar year, as long as the owner is a natural person and they are time deposits through nominative documents or to order.

Where to invest your money

The destination of the investment of your savings will depend a lot on the type of investor you are. For example, if you are a moderate investor, like most life savers, your ability to bear losses will be low, so it is best to make investments with minimal risk, such as savings accounts and bank deposits.

  • Invest in the short term in a savings account. Many investors look for low-risk products, where the money is safe and guaranteed and that still provides them with profitability. One of the best options in these cases is to invest in a savings account. Among the advantages of investing in a savings account is that the money is always available to withdraw whenever you want. Savings earn interest from day one.

Many of these accounts require a minimum investment of 5,000 euros and are available without commissions, so you do not have to pay anything to contract it. The profitability is somewhat lower than when contracting other financial products, in fact, banks such as BRAbank currently offer high returns to those customers who are inclined to open a savings account in this bank. In addition, by comparing Raisin’s partner banks, you can quickly and easily discover which European banks offer more advantageous conditions when opening an account of this type with them.

  • Bank deposits, to invest in the medium or long term. Another of the most attractive options that exist to invest your money are bank deposits. Term deposits are a banking product in which the client delivers an amount of money to the bank during a determined period of time and at previously agreed interest rates, so that the client can calculate in advance how much money they will have back once the life of the deposit has expired.

The fear of the arrival of a new economic crisis has made Spanish families raise their deposits in a year by almost 45,000 million euros, detailed from ABC. Currently, the best investment option is to open a bank deposit in a financial institution in the European Union, which is where the best returns for this type of investment are currently being offered.

  • Invest in the stock market. Investing in the stock market is known for its high performance and the benefits it generates, but also for its complexity and risk. The profitability of investing in the stock market is usually long term. The purchase of shares is usually carried out through a broker, who acts as an intermediary in the purchase of these. However, before making any decision, it is necessary to carefully study the situation of the company in which you want to invest, as well as possible market fluctuations.
  • Pension plans. Another option to invest the capital is to do it in a pension plan. They are portfolios formed by investment funds. Among its peculiarities, it stands out that the money invested in this type of plan will be retained there until 10 years have passed or conditions such as the investor retiring, being long-term unemployed, having work disability, serious illness, situations dependency or has died, so that amount can be recovered by your family. This option can always be combined with others such as bank deposits, where you can have your money whenever you want.
  • Another option: investment funds. On the other hand, there are those who diversify their capital through investment funds. Investment funds are investment financial instruments that gather the capital of a large number of people so that an external entity is in charge of managing and investing it. This financial option works in the way that you pay a manager to take care of studying which companies are the most suitable to invest in.
  • Buy currencies. Buying currencies in the hope that their market value will change is another way to invest money. The only downside to this type of investment is that it takes a long time to get a high return. An example of this type of practice would be buying US dollars with euros and if the value of the US dollar against the euro increases over time, the investor would earn money.

Whatever option you decide to invest your money, the key to a good investment is to diversify. A well-diversified portfolio in which, for example, 85% of the assets held are invested in financial products with zero or low risk, such as savings accounts or bank deposits, and whose remaining funds, that is, 15% of the capital is in variable income assets.

Having invested most of the savings in low-risk assets, it will be an important part of your investment, since it will provide more security and stability to the invested finances. On the other hand, those funds that you have allocated to products or financial decisions with greater risk and more volatility will be those that try to increase the profitability of your portfolio. But as it is a small percentage of the savings invested, you will not take excessive risks, so that the overall return on your investment will be well controlled.