Making the right investments: getting the most out of your money
There are a few tips to follow if you want to invest well
Investors naturally want to invest well. However, it’s not as simple as all that, especially if your knowledge is limited and you’re just starting to build a portfolio. To be successful, it helps to follow a few tips and adhere to certain principles.
Above all, it is important to define the scope of your investment activities and clearly establish what budget is available solely for investments. It’s not really wise to invest money excessively, as this can quickly lead to losses and disappointment. The right way to do things is to think long-term and act prudently. It’s wise to factor in taxes or cash you will need for any construction work, purchases, notarial costs if you buy a property, and other expenditure.
Take your time
It’s also wise to bear in mind that you need time to consider financial decisions. In particular, the following questions should be answered beforehand:
- How much can I save each month?
- What medium-term projects do I have, for which I also need to budget?
- Do I have enough liquid assets besides my investments to cover the cost of unexpected events?
A bank adviser will know the financial products that are best suited to you and will help to set important medium- or long-term goals.
Once that has been clarified, you need to set long-term investment objectives. It is a good idea to talk to an expert, that is, a bank adviser, in relation to this. A bank adviser will use their expertise and know-how to draw up a specific investment profile and financial plan for your benefit. They can also help you find the financial products that are best suited to you and will help to set important medium- or long-term goals. Experience shows that long-term investments often have the greatest potential. Short-term investments are high-risk and should be avoided.
To limit risk, it’s also wise to invest in secure products to start with, such as government bonds. Countries seldom default, and this offers greater security. To get higher returns, you must take on greater risk. This is not really a wise path for a budding investor. Investors have a tendency to focus on returns and push the risk they are taking to the back of their minds.
Gathering the important information
A good investor continues to learn, ensures that they are well-informed and seeks out the latest trends in the stock market or in their sector of investment. So it makes sense to subscribe to financial magazines and to follow the financial news in the media. However, always maintain a critical stance and beware of self-proclaimed experts. Miracles are a rare occurance in the stock market. On that note, another tip would be to learn to ignore rumours about the state of the market, because they often cause investors to flock to one stock or product or another for no reason. Keep calm even when prices go through the roof.
It’s particularly important not to put all your eggs in one basket. Diversification is key. Make sure you invest in different products or financial instruments and in various economic sectors. Of course, there is a price to pay for diversification, and it’s always important to be mindful of costs. In addition, costs are incurred when investing in other currencies.
Forgetful investors are rarely successful, so keeping a database with historical data and tables will help you keep track. There are good tools and applications out there for this. However, the fact is that nothing is guaranteed when it comes to investment. Past performance is no guarantee of future performance.
Market timing – the moment at which you intend to enter or leave the market – is particularly important. Timing is crucial, including for long-term investments. Unfortunately, many savers start by investing much of their savings at once. They are not aware of the risk involved in market timing.
Expert advice: there are two options
Choosing professional assistance with investing simply means engaging an expert to advise or manage some or all of the financial assets you intend to invest. Depending on the investor profile, there are two options:
Advisory mandates are worth considering for people who want to get investment recommendations from experts but ultimately like the final decision to stay with them. The experts provide the information required to make the investment decision and for the further management of the portfolio. This relationship is defined in a contract, which sets out the rights and obligations of both parties in a precise, transparent and detailed manner.
People who choose this option have someone else manage their investments for them and seek a solid, reliable partner. They need trustworthy professionals who take care of their assets. Discretionary management mandates specially tailored to the investor’s needs respect certain investment objectives and risk profiles. To put it simply, you entrust everything to the professionals.