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HomeLatest NewsDo you want to start investing?: Start by knowing yourself

Do you want to start investing?: Start by knowing yourself

Date: April 19, 2024 Time: 15:45:33

Knowing yourself should be the first step to start an investment. It is what is known as investor profile and allows to determine which is the strategy and financial products that best suit personal needs. Not everyone has the same characteristics and needs. They influence the age, the economic situation, the financial objectives, the investment term or the level of risk that can be assumed.

Depending on the above characteristics, the investor profile may be conservative, moderate or aggressive. From this definition it is easier to determine the most appropriate investment. However, it is possible to have a conservative profile and, at any given time, it may be convenient to invest part of the savings in products intended for more moderate or aggressive investors. And on the contrary, although he has been classified as an aggressive investor, it may be due to the need to allocate savings to products with a lower level of risk.

And in the investment subjective causes are also involved, associated with the way of being of each one and the investor’s psychological willingness to assume losses. Despite the fact that their economic situation and other factors allow a profile that assumes greater risk, not everyone feels comfortable with the possibility of losing part of their savings. “Investors with a lot of risk aversion may panic during momentary market downturns and sell when the time is not right,” says the CNMV.

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psychological component

The financial regulator affirms that “it is important to be informed and aware of the biases that occur in the decision-making process and to be aware that no one is exempt from them.” On this, he points to the following factors: bias of the illusion of control, confirmation, anchoring, authority, social proof, hyperbolic discounting and loss aversion.

First of all, you have to take into account the ability to control or the possibility of influencing something over which you objectively have no control because it is sometimes overestimated. And, in relation, the CNMV also warns about the interpretation of the information received or new information in such a way that they confirm convictions or previous ideas.

Anchoring bias is the predisposition to give more weight to the information obtained in the first place than to new information that contradicts it. For its part, the hyperbolic discount bias implies the tendency to choose smaller and immediate rewards over larger and remote rewards in time. And linked to risk, a common bias is loss aversion. It means considering that the losses outweigh the gains. That is, the fear of losing something is a greater incentive than the possibility of gaining something of similar value.

Authority bias: attention to ‘influencers’

When investing, the opinions of other investors are also taken into account, especially experts or even celebrities. However, sometimes there is a tendency to overestimate these opinions only by those who issue them, without objectively analyzing them. It is what is known as authority bias, when we overestimate their opinions on topics outside their field of expertise.

The CNMV warns against “influencer marketing and testimonials from famous people” who offer advice through social networks. He advises learning to think and analyze independently and not making investment decisions based solely on recommendations from celebrities or influencers.

Objectivity when investing is essential, even to follow the behavior of other unknown investors. In this way, the social proof bias will also be avoided, the tendency to imitate the actions carried out by other people under the belief that the correct behavior is being adopted.

* This website provides news content gathered from various internet sources. It is crucial to understand that we are not responsible for the accuracy, completeness, or reliability of the information presented Read More

Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.
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