Investment Write For Us Investing involves buying assets that increase in worth over time and delivering revenues through income payments or capital gains. Financial investments refer to operations made in securities such as shares, bonds, bills of exchange, bank deposits, and other financial instruments.
Investing money can be seen as an outflow of capital done in the present to improve personal and family financial health in the future. You aim to buy an asset at a low price and sell it for a higher cost. In the case of financial investments, according to the classification of the National Securities Market Commission (CNMV), several possibilities can help the investor to fulfill this purpose:
Fixed Income Investments :
Fixed-income products are usually attractive to people who do not want risks in their investments, even if their potential profitability is lower than other financial products. Its interests can be fixed from the issuance until its expiration or be referenced to some indicator such as Euribor.
Variable income investments:
Its main characteristic is that its possible future yield is unknown at the acquisition time. The reason is that these operations depend on different factors. An excellent example of investment in equities is the shares of companies, where aspects such as the evolution of the company or the behavior of the markets must be taken into account, which are very sensitive to any event that may affect them.
When the investor buys shares, he becomes the owner of a part of the business and automatically acquires a series of rights. Among them is the obtaining of dividends when the company obtains benefits. People interested in investing in equities should know that they must do so through financial intermediaries, which are the ones that execute the purchase and sale orders. Among its possible risks, the CNMV warns about the uncertainty associated with these investments and recalls that they do not have a maturity period.
Investment funds:
It refers to a savings instrument that gathers a collective patrimony formed by the contributions of a variable number of investors. These contributions are invested in various financial instruments such as shares, fixed-income securities, derivatives, or a combination of these, and their management is entrusted to a management company.
The objective of these products is to improve the profitability of savings. From relatively modest contributions, with which a large patrimony is built, and through a professionalized administration, can access the money and securities markets, more profitable than the intermediate ones, although too complex and uncertain to the small investor,” explains a report by the Bank of Spain.
Before investing in this type of product, you must consider version factors such as their volatility (possible price fluctuations concerning their average), duration, and investment strategy, which helps to get an idea of the maximum and minimum risk levels in what can happen.
Hybrid products:
They have some aspects of fixed income and others of variable pay. The main products of this type are preference shares and convertible bonds and obligations.
In the first case, as the CNMV explains, it is a complex instrument “whose issuer, in the case of a credit institution, usually reserves the right to redeem the shares after five years.” The profitability of preference shares is fixed in the first period and variable during the rest of the product’s life. However, it is not guaranteed “since it is subject to distributable profits,” states the CNMV.
In the case of adaptable and/or exchangeable bonds, the holder has the right to exchange them for shares of the issuing entity. According to the CNMV, “the difference between exchange and conversion is that, in the first case, the transformation into shares is carried out by delivering old shares that are part of the issuer’s treasury stock, while, in the second, shares are delivered new.”
Derivative products:
In the case of these investments, their value is contingent on the development of the prices of another underlying asset. Derivatives constitute a contract, as explained by BBVA Asset Management, with the following characteristics:
– Its settlement is made at a later date.
– A national amount that is the object of the contract and the payment conditions must be established.
– Depending on whether it has been held in the counter market or the local Stock Exchange, a net investment may or may not be required.
Among the types of derivative products are futures, warrants, options, etc.
Structured products:
They suppose the union of two or more financial instruments in a single structure. Typically, this is a fixed-income product with one or more derivatives. According to its format, it can be classified as:
– Structured deposits: with capital guarantee at maturity
– Funds: with or without capital guarantee at maturity
– Structured note or bond: with or without capital guarantee at maturity
– Financial Contract: with capital risk at maturity
Given the wide variety of selections that exist, to be able to hit the product that is chosen, to achieve the financial goals that each one proposes, and to plan for the future, it is convenient to take these steps.
Get informed and plan.
Experts agree that the economic outlook is increasingly complex, so before entering the world of financial investments, it is necessary to know precisely what will be done. “The first step that I would endorse is to collect basic information on how the financial system, investment, and its legal framework works,” explains the financial technician, Miguel San Martín Llamas. “In this way, it will likely have a general image of how the system works and which options may be more advantageous, within their personal perceptions.”
Determine the risk profile.
In this previous work of gathering information, the analysis of one’s financial personality also enters. “Pre-establishing the risk profile will determine the most appropriate types of instruments,” recommends Alejandro Guzmán.
The best advice
Getting lost amongst many such offers is informal, so it is best to ask for help. “I think it is convenient to go to different financial advisors and compare the options they offer us,” advises San Martín. “You must always think that we must balance risk and return .”
Find the right product.
Once the most suitable investment product has been chosen, it is good to continue investigating. “You must carefully review the conditions, restrictions, and how the deposited savings are invested to avoid later surprises,” explains Alejandro Guzmán. “Likewise, review the historical performance of the selected instruments and that this is consistent with the savings objectives .”
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