How and in what to invest my money?

How and in what to invest my money?

The term “financial health” refers to the state of your personal, family, and even company finances. It seeks to make a comparison between the general conditions of the accounts with what is understood by medical health because in both cases it is key that you worry and stay healthy. Get Alviso apartments for rent if you want to save money and live in awesome place.

The dilemma: keep your money vs. put it to work

When it comes to financial health, experts do not only refer to savings, because despite all the effort involved in collecting on a day-to-day basis, saving money without it producing a profit has an enemy in a macroeconomic factor known as “inflation”, which is the general increase in prices. 

The problem is that savings remain without growing, while inflation makes the price of products and services more expensive so that in time the money you have saved will be left behind. Therefore, when you have good savings, look for the best options to invest, but also those that seem safer to you, because the best way to combat rising prices is with investments, which put your money to work and can grow, something fundamental to reach your financial goals.

What is an investment?

It is the activity in which you use your savings in some instrument or project to obtain a benefit or return in the future. If you look deeper, you will realize that investments involve an opportunity cost, since the resources you invest will not be available in the present to occupy them in something else at the same time.

If you think about it, you would not dedicate resources from which you can make a profit in activities that are not profitable for you, so to maximize the results you should use the money for what gives you a better return on benefits. In addition, in all operations, you must consider a risk component, since an investment may not turn out as you expect, so you must be prepared for various factors.

To measure the possible results that investments can give you, offset the opportunity cost and become more attractive, the instruments promise a certain amount of interest, which is the percentage expression of the possible profit that an investment can leave you. In that sense, interest is the payment for the use of money over time.

Investments should be compared with three factors in mind: risk, return, and duration. Ideally, an investment should have very low risk, a high return, and last a reasonable time, but the truth is that it is difficult to find ideal investments and, therefore, you must learn to invest.

How to invest?

Investments are rational acts, that is, they involve several processes in which you have to do an analysis and then make a decision. You must seek to obtain the maximum return, the lowest risk, and the shortest possible time to achieve profits. Although the perfect investment does not exist, the idea is that you look for a good balance between these three variables. For this you need:

Study your options. Knowing the goal of obtaining more performance, less risk, and a limited time horizon, you should study the alternatives you have to achieve it and then choose the most appropriate option for your needs.

Decide how much money you are going to invest. You must know how much money you will allocate to your investments since you must have control of your budget at all times.

Set how much money you want to earn. Although with investments there is no profit limit, the ideal is that you go step by step with the amounts of money you want to obtain. Knowing that amount will help you make decisions during the process, as an instrument may generate more money, but go beyond the established time, or that it is riskier than you are willing to accept.

Outline a strategy. Now that you know how much you want, you must make a plan. Calculate the term, yield, and investigate possible investment instruments.

However, you must take the time to evaluate all your options and consider that investments should be diversified, that is, divided into different instruments to protect your money against possible losses and obtain a better return.

And how much money should I invest?

As you can see, there is always a certain level of risk, so you should only invest if you have money saved or if you can afford to lose a little cash from your income without affecting your financial health because the idea is that in any scenario you can maintain your standard of living and continue to cover your needs, so the advice is to never risk more than what you have set aside to invest.

When talking about investments, you have surely heard the following phrase:  “never put all your eggs in one basket”,  what it means is that it is not recommended that you invest all your money in a single instrument. Therefore, the best investors diversify.

To have a distributed investment, you need to select several instruments with which you feel comfortable and decide the amount of money that you are going to place in each of them. The ideal is to do it through a plan in which you consider the term, the risk, the returns, your level of tolerance for uncertainty, and the duration of the investment.

When you have carefully analyzed all the above factors, you will have your investment strategy. It is advisable to make a plan for each of the financial goals you have and that you intend to achieve with your movements. 

Tips for first-time investors

We can all invest, but it is important to start little by little and if you want to enter the world of investments, you can heed these tips:

  • Make a plan and set your profitability goals. By doing this you will be able to make decisions according to your profile and objectives, so if you see risk you can protect yourself or, in certain cases, risk more to increase your profits.
  • Determine the starting point. Choose instruments with which you feel safe, remember that later you can change them for others when you want to take a risk or return to them in case you need refuge.
  • Stay on top of commissions. Depending on the type of investment you choose, there will be intermediary institutions, so there could be commissions for profits, so you should consider that percentage.
  • Check periodically. From time to time monitor the progress of your investments. If they have not given results, consider changing the tool to refocus the path.
  • Invest safely. Only place your money with institutions that are duly supervised, regulated, and authorized by the CNBV, the National Banking and Securities Commission.
  • Take care of the terms of your investments. Markets are often volatile; Therefore, try to analyze together with an advisor the terms in which you will have active investments. The idea is that you can foresee if there could be losses and the time frames in which it would be possible to recover them.
  • Increase your financial culture. One of the best tips is not to make moves on instruments you don’t know or don’t know how they work. The more you know about investment tools, the more you will have the ability to get better returns on your money. In addition, you must know what they are talking about when they offer to make transactions or place resources in a new instrument. Knowing will allow you to make the best decisions about what to do with your money.

The key concepts you should know

As in everything, investments have their terms and concepts that you should know. It is important not only that you are familiar with them, but that you know what they imply, since we are talking about your money, so to start investing it is important that you review them:

  • performance. It is the profit or profit you expect to make, almost always measured as a percentage of the amount you invested.
  • The risk. It is about assigning a numerical value to the uncertainty of the performance that your investment may have.
  • The investment horizon. It is the term that each investment or the strategy, in general, will last. It is the time in which you want to achieve your goal and therefore the period in which you are willing to keep your money invested, it can be short, medium, or long term.
  • Your investor profile. The characteristics and needs that define you as an investor. Knowing your profile will help you make better decisions and will help you know how aggressive or conservative you can be in your movements. Your profile includes considering objectives, horizon, experience, and your level of resistance to the stress generated by investments.
  • Degree of liquidity. It is about the speed with which you can withdraw your investment during the time it lasts.

Before knowing what type of investor you are, you must associate points of your personality to the following profiles:

  • Conservative. You seek as few risks as possible and prefer stable investments, even if you receive few returns, but you value having greater availability of your money. Your investment horizon is short.
  • Moderate. It is about looking for good returns without taking many risks. You want safe investments, but also find a balance between that level of security and good returns. Your investment horizon is the medium term.
  • Aggressive. You are only interested in higher returns and therefore are willing to take higher risks. Your investment horizon is long, although you are not afraid of short-term and quick movements.

Is it possible to invest without risk?

You have to consider that there is always a component of uncertainty, so the risk of any investment will never be zero and will always be closely related to any instrument since all investments run certain types of risks, some more and others less. Those that are less secure, usually give you higher interest in exchange.

However, it is possible to reduce it, especially by choosing low-risk products or reducing it with diversification strategies that seek that when one investment goes wrong, the others can generate returns.

What to invest in?

Although this is a personal decision and depends on the analysis you have done, it is important that you know the characteristics of risk, return or liquidity that you can obtain from one moment to another with some of the most common investment instruments.

You also have to think about how much money you are willing to invest and your preferences when it comes to controlling. If you have just decided to invest and are about to start, do it with low-risk instruments, as this will allow you to increase your knowledge and begin to familiarize yourself with the world of investments. 

Little by little you will be able to risk more because you will already know what implications an investment has and you will be able to look for instruments that give you higher returns. Here are some alternatives in which you can invest your money:

  • CETES. They are called CETES to the Certificates of the Treasury of the Federation and that do not contemplate the payment of periodic interests, but that being government investment instruments are usually very safe, since they are backed by the money of the countries. At the end of the term, as an investor, you receive the agreed return that is expressed as the difference between the value that was expected to be reached in that period and the value that you paid for each one when you bought it. Although their yields are low, they are recommended for all types of investors, but especially for conservatives. If you are looking for what to invest little money in, this is a good option, since you can start from 100 pesos.
  • BONDS. The Federal Government Development Bonds are also government instruments, but something that distinguishes them from CETES is that they do pay interest from time to time. As the owner, you receive interest at the end of the term plus the difference between the face value and the price you paid when you bought it. It is another option that allows you to invest from 100 pesos.
  • UDIBONOS. The so-called Investment Units or Development Bonds of the Federal Government pay interest every six months at a fixed rate, plus a profit or loss that has to do with the behavior of the UDIs. If you have the recurring question of “Where to invest my money in Mexico?” this is a good option.
  • PRLV. Payable-at-Maturity Yield Notes are short-term securities issued by credit institutions. They establish the rate of return and the term of the investment from the beginning.
  • Investment funds. They are investments managed by institutions that gather the capital of several interested parties and who become shareholders of that company or fund. This alternative invests in different instruments and thus reduces risks. They are classified into three: debt, variable income, and capital. They have no guaranteed returns and the more you risk, the higher the return.
  • Actions. They are securities that some companies issue to finance themselves. Owners get rights, such as receiving dividends if the issuer distributes them. Investing consists of buying them and later selling them at a higher price or receiving dividends. They are highly liquid investments, although they are high risk, as it is a volatile market. If you want to invest in companies, consider this option.
  • Bonds. They are debt securities of companies, governments, and other entities that are issued by these institutions to finance themselves and that give the owner the right to receive periodic interest, which is fixed from the beginning and lasts throughout the life of the bond. This investment is made for a profit on interest payments and offers good returns, but lower than stocks. It is common for them to be included in investment funds as a safer instrument with the idea of ​​diversifying the fund since a bond is considered low risk. If you are determined to start, this is one of the best options to invest in.
  • Real estate. This investment consists of buying a property to later sell it at a higher price or rent it. You can buy land, houses, or apartments, and when you see that an area is gaining value, then sell them at a much higher price due to the increase in demand. Similarly, buying apartments to rent them is an excellent option for you to obtain passive income. Consider the following secrets to investing in real estate.
  • Invest in business. It consists of contributing the funds that are required in a business to obtain benefits with the utility or then selling your percentage of participation. You can invest in your own business or someone else’s, in a new one, or in a company that is already established. If you are a foreigner and have the recurring question of “Where to invest my money in Mexico?” This is a very good option and for this, review some indicators to detect an attractive business.
  • Invest in gold. It consists of buying gold to sell it at a higher price and make a profit. You can acquire gold in two ways: directly with coins or gold bars and the indirect way is with certificates of deposit. It can be quite profitable if you know when to buy and when to sell. It is a great investment in the short or medium term, as many take refuge in gold when there is instability.
  • Buying and selling currencies. The foreign exchange market, known as Forex, is an investment alternative that, unlike other options, can vary in the risk involved. It is carried out under the participation in the  Foreign Exchange market and consists of the purchase and sale of currencies from different countries or regions such as euros, from Europe, dollars from the United States, or yens from Japan, among others. Currencies appreciate or lose value due to changes in the markets and changes become the opportunity to earn returns. This is an investment that offers an efficient alternative, since the price per unit may be more attractive than in other options. However, this vehicle is not for all types of profiles, since the risks depend on the investor, and from one moment to another you can lose or win a lot of money, unlike other more stable instruments.
  • Cryptocurrencies. Although there are many myths associated with this option, in the same way as with currencies, the purchase of cryptocurrencies is made through safe digital services, since every time a movement is made in the account of one of the holders of a cryptocurrency, there remains an unalterable record. The investment is made by buying units of the cryptocurrency for a certain amount of money, and then selling them at a higher price when the demand for each unit causes the price to rise.

Before making any investment, it is vitally important that you carry out a good analysis of each of the options available to you and then decide where you want to put your money. Do not forget to respect your profile, your horizon, and your investment goal, and of course, never risk more than what you have available.

By Master James

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