Knowing how to invest correctly does not mean following a single strategy, as if there was a recipe that works for everyone. In fact, this is a task that depends on an individual analysis of your characteristics so that the choices are appropriate for you.
In this way it is possible to make your money work in a way that makes sense for you. Besides, it is a way to make conscious decisions and decrease the probability of making mistakes.
In this article, I present 9 tips that bring the main pillars for those who want to invest correctly. Check them out!
1. Consider your investor profile
Before making any decision, it is necessary to know what your investor profile is, considering your tolerance for risk. Among the types, you can be classified as conservative, moderate, or bold, in increasing order in relation to the ability to take risks when investing.
By understanding your profile, it is possible to compose a portfolio aligned to this characteristic, considering the risks involved in each type of investment.
2. Understand your personal needs
In addition to the investor profile, it is crucial to consider other individual points. Therefore, it is important to assess what your needs and expectations are, both in terms of return and investment motives.
If you want to build up an emergency reserve, for example, you should save the equivalent of 6 months of monthly expenses, leaving the amount accessible at any time. So you need investments that are safe and liquid.
On the other hand, if you want to increase your assets, it may make sense to look for types of investments that bring more financial return. Thus, the recommended thing is to understand where you want to go with the financial market results to align your decisions.
3. Know what your investment horizon is
The analysis of financial goals is not restricted to how much you want to get. You also need to consider what your available time is and what your investment horizon is.
Think, for example, about retirement. This is usually a long-term investment, with periods of more than 5 years. So including the time frame in your goals helps you understand if you can choose options with more or less risk.
This is also a way to understand how much you will need to contribute to achieve your short, medium and long term expectations.
4. Understand your available capital
Another fundamental step is to consider what level of capital you have available to invest at this first moment. This is important because there are investments with minimum amounts that must be made available.
Moreover, it is an issue that interferes with the ability to diversify the portfolio, that is, to choose multiple assets when starting your investments. To optimize this issue, it is worth developing a financial planning.
With a strategy aimed at balancing the budget, it is possible to save money and continuously increase your ability to invest.
5. Know the market opportunities
After making this individual analysis, another important point to know how to invest correctly is to know the available alternatives. In general, the financial market is divided into fixed income and variable income.
The first class is composed of financial applications with profitability rules that are previously known by the investor. The second class, on the other hand, is formed by investments where it is not known how (or if) the financial return will occur.
Within each class there are several investment opportunities. Therefore, it is essential to know the characteristics related to security, liquidity and profitability of each one, this is the so-called investment tripod.
Based on their individual aspects, it is possible to define which opportunities may be more interesting for your portfolio.
6. Evaluate the economic scenario
In addition to identifying your characteristics and how your investments work, it is worth analyzing the economic and financial scenario. Before buying stocks on the stock market, for example, you need to understand the situation of the company and the sector in which it operates.
Assessing macroeconomic perspectives can also help you identify what the market characteristics tend to be. This way you can take advantage of better opportunities or reduce the risks in your portfolio.
On the other hand, economic scenario analysis should have limited impact on certain decisions. For the long term, for example, the negative performance of one sector in a half-year may not impact the overall result.
This is why it is also necessary to compose a robust analysis that focuses on the long term. This way, you will have the opportunity to understand the perspectives for this period.
7. Create and follow a strategic plan
After applying the previous tips, create a strategic plan for investing. Here, the idea is to understand how much you intend to allocate in this first moment and in which opportunities, considering your profile and your goals.
In addition, it is interesting to define a strategy for the continuity of the portfolio composition. This means determining how you want to invest over time and in which types of investments, for example.
It is also worth establishing what the monthly contributions will be and how often you intend to review and adapt the strategy. With this plan in place, it is easier to stick to it when making strategic decisions.
8. Diversify your investment portfolio
Another essential point to invest correctly involves the strategy known as portfolio diversification. In this case, the intention is to choose investment options with different risks and that behave differently.
This is a way to dilute the risks, since you avoid concentrating your resources on a few alternatives and market conditions. At the same time, the practice can help you compose a better return.
9. Seek to increase your knowledge
To optimize your ability to make decisions, expanding your knowledge is an essential point. Therefore, it is interesting to advance in your financial education and learn more and more about the investment market.
With more knowledge, you will have the opportunity to explore new strategies and may even identify with a different investor profile. As a consequence, there are chances to adapt your strategy to each moment of your life, in a more conscious and prepared way.
With these 9 tips, you have learned how to invest correctly considering your individual characteristics. This way, you have the chance to compose a portfolio that makes sense for your reality in a complete way.
