Investing is a way to get a return on savings. Through the stock market, investors can acquire different financial assets from which they obtain capital gains thanks to the evolution of the prices of these assets. Stocks are the most popular investment products, but there are many who can invest in income, variable…
In addition, in recent years investment in cryptocurrencies has also gained weight. An asset, whose main difference is that it is operated in a decentralized market, not backed by a central bank. In fact, regulators have issued warnings about the risks of investing in cryptocurrencies.
Among the multitude of options that currently exist, each investor can form his portfolio. This is the set of investments in financial assets that represent the assets of each investor. To decide which investments to make, one of the most repeated tips is to diversify. It is an investment strategy that is based on the idea that it is less risky to buy a little of many things than a lot of one thing.
diversified investments
The Spanish financial regulator states that “concentration risk is the possibility of suffering losses by investing too high a proportion of the money available in a single asset or type of asset.” To avoid this, it is advisable to diversify the portfolio. In other words, diversifying consists of distributing the money among several different investments. Thus, “possible losses from some investments could be offset by gains from others,” the CNMV points out.
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First of all, each investor must decide what weight to dedicate to each type of asset –stocks, bonds, currencies, cryptocurrencies…-. And, in addition, the investor must maintain a portfolio with assets with different levels of risk and potential profitability, from different sectors of activity -industry, services, food, new technologies, banking, energy, construction…- or from different geographical areas. ficas
According to the profile of the investor
The weight of each investment came from the investor profile. Risk is one of the main points to take into account to establish the profile of each investor. From BME, operator of the Spanish stock market, they recommend “defining precisely what risk you are willing to assume, or in other words, what level of profit/loss you expect to apply to said investment.” This will determine an adverse or probable risk profile.
For example, if the investor is not willing to lose a lot of money and wants to take little risk, consider being a very risk-averse investor. For this profile, one should be willing to accept a low return, since risk and return are usually directly related: the higher the expected return, the higher the risk assumed. 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.
On the other hand, the investment term is also a determining factor. The CNMV points out that, for the majority of retail investors, it is much more advisable to conceive the investment as a medium or long-term strategy, which reduces price risk. BME also affirms that it is important to define the term of the investment: “As has been shown in different studies on different markets, including the Spanish one, the Stock Market is a profitable and safe investment in the long term. For sufficiently long periods, from 10 years onwards, a diversified portfolio of shares offers returns that are superior to those of any other financial asset.
