Soon we will be starting a new academic and official year and returning to our work routines. After a well-deserved holiday, it will be a good time to rethink the optimal management strategy for our savings, which will allow us to keep calm and confident for the coming year.
According to experts at Vall Banc, a banking entity specialising in Wealth Management, it’s best to start investing as soon as possible. Being an investor means taking into account the value of money over time and putting money to work with the goal of increasing our capital, with no extra effort beyond saving. If instead we only save, our purchasing power, over the years and due to inflation and the natural evolution of the market, will decline exponentially.
That's why Vall Banc answers five key questions so that anyone, regardless of age, profession, financial or life situation, can know how and where to invest:
- Defining financial goals: why invest?
As with any other action, before you begin, you have to determine what your goals are. Start by asking yourself: “why do I want to invest?” This will allow you define and prioritise your needs: invest to study for a master's degree, buy a house or a car, travel, retire ...
“There is a wide range of possibilities and no particular way is better than another: all are compatible with investment. Asking yourself these simple questions will help you set a short- and long-term goal, while allowing you to know what level of risk you can accept,” says Ignacio Perea, Investment Director of Vall Banc.
- What do I need to keep in mind? The importance of knowing your risk tolerance
Being realistic is key in any investment, as it allows us to avoid excessive risk and anticipate possible risks. In this regard, it is important to determine your investor profile based on your risk tolerance level. This is a concept related to the volatility, amount of market risk, ups and downs you can tolerate, etc.
Financial education and employment status are some of the factors to consider when determining risk tolerance. The greater your financial literacy and the more stable your employment situation, the higher the risk level you can accept. “Having a financial advisor is key when it comes to calculating risk tolerance. This person, through a detailed analysis of your needs and expectations, will be able to advise you properly and in a personalised way at all stages of your life cycle", explains the Investment Director of Vall Banc.
- What investment strategy do I want to follow?
In addition to investor profile and risk tolerance level, it is important to have a clear idea of the strategy to follow when investing. That is, whether we prefer to invest all our savings at the same time and from the beginning or instead opt for systematic investment.
This is the practice financial experts typically recommend. It consists of periodically investing a certain amount of money, which allows us to diversify entry points, reduce risk and ensure the efficiency and success of our actions. “For those who do not have as much time as they would like for investing and want to avoid depending on market developments, systematic investment is the best option, since profitability will be more consistent and bring more long-term benefits,” says Ignacio Perea.
- Building a tailored investment portfolio: how do I want to invest?
Once we have defined goals, strategy, profile and risk tolerance, it is time to choose the composition of your investment portfolio, in other words, to decide how you will invest. Your investment portfolio will be made up of a combination of several assets that, depending on whether the correlation between them is positive or negative, will tend to perform similarly or differently in relation to each other.
This means that if the correlation is positive, when the price of one of the assets rises, the other one predictably does so as well. On the other hand, if it is negative, when one rises, the other falls and vice versa. “In the case of investors who are just starting out and in order to have a global view of the portfolio, it is best to have assets that perform differently from one another, as this will ensure the stability of the portfolio,” Vall Banc's Investment Director advises.
- Decide where you will invest with the help of a financial advisor
The last step is to select the funds and assets you will invest in. Having a diversified and global vision of the market is key in doing this, as investors often have a proximity bias, which leads them to miss out on investment opportunities in other countries or continents. Financial advisors become important again in this phase of the investment process because, thanks to their knowledge and the range of technological tools they can offer, they facilitate a customised search for opportunities.
“It is preferable for less-experienced investors with little capital to invest in the wide universe of investment funds, since from €10-20 you can buy and have your own fund. Meanwhile, for investors with training, significant experience and a higher volume of assets, it is better to opt for private banking tranches”, explains Ignacio Perea, Vall Banc's Investment Director.