Look at this article, here we give you some ideas so that investing is less complicated than it seems.
Invest in what you know ... and nothing else
Companies with excess cash, usually have business participation in companies of the group itself. They also invest in other companies that can provide them with economic returns through dividends, or through the sale of shares in the financial markets.
To make an investment in the Stock Market, it is essential to know the evolution of a specific business sector, the profitability of a company over time, its trajectory, the solvency and equity balance, etc. It is even important to know the economic and fiscal regulations that affect a certain sector. We already know the enormous impact that the establishment of tariffs by the United States had on imports of products from various countries. The higher cost to sell products and services materialized in a significant drop in profits and, therefore, in their price on the markets.
Given the zero profitability of demand deposits, including time savings accounts, there has been a greater interest in stock market investments.
Nor do they usually spend a lot of time or effort investigating what type of investment is best suited to their personal and family situation. Obviously you should only invest that money that is not needed in the short or medium term.
Although in investment companies and financial institutions it is mandatory to fill out the “investor profile” report, a person may have a certain tolerance for risk. But the "paper" supports everything and that discrepancy can be quickly revealed in a single day of heart attack, at the level of volatility.
An investor well known for his long track record of success is Warren Buffet, who says, "Don't invest in a business you don't understand."
Are the markets safe, efficient, predictable? Certainly not. The hope of making money on the stock market is based on speculation, in addition to the appreciation of assets. We must take into account that:
- The markets are unpredictable and highly emotional.
- Anything can happen, because countless factors intervene in the composition of the prices of listed securities.
- The "experts" do not have better results than other people who act randomly, or intuitively, with their interventions.
- The uncertainty about the potential gains - or losses - always remains over time.
- The price of a stock does not correspond to its real value, but to the thinking and estimates of buyers and sellers.
- The factors "confidence" and "fear" drive prices up or down.
Even with all of the above, the average profitability of the stock markets is much higher than that of conservative and risk-free assets, considered in periods of several years.
Fundamental analysis focuses on certain past and present data, as well as a future estimate of a company's profitability. If you can't reasonably understand how a company makes money and what the differentiators are in its industry with a short explanation of your own, then don't invest.
Of the thousands of companies listed, we consider that no more than a few hundred companies meet basic standards of business simplicity.
It is above all very important that you feel comfortable with what you invest and that you do not need the money you put into the Stock Market in the short term. You also have to be willing to emotionally endure the ups and downs of the markets when there are stages, like the present one we are experiencing, where there is a lot of instability and uncertainty.
Live off one income, invest the other
If you live in a household that brings two different incomes, living off one income and investing the other is one of the best financial decisions you can make. The reality is that there is a tendency to spend more as more money is earned. The sensible thing is to save at least 10% to 20% of the monthly income, even reaching 30% as long as the earnings from work are enough to live well, without hardships.
In many cases, families are able to live comfortably on an income. Knowing well where the money is spent, to avoid small or ant expenses, those unnecessary expenses, helps to have a good economic planning, a basis for saving and investing.
If you can keep your bills paid and maintain a pleasant lifestyle while spending the equivalent of a single income, you can invest an enormous amount of money over the years, preparing you and your partner for a very good retirement.
Buy businesses, not stocks
When considering the purchase of shares in a company, it is very useful to think that it is about buying the entire company. Warren Buffet advises analyzing the company as if it were a decision that will accompany you for many years.
Since you can obviously only buy a portion of the company, approach your investment as if you were buying the entire company completely, instead of just buying shares of the company; This forces you to ask yourself the right questions.
- Is it a company worth financially participating in?
- Is it a company that you would be proud to own?
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