With the recent falls in the stock market, both in Brazil and abroad, it is clear that some mistakes have been made by investors — especially beginners.
To help you on the journey, which I believe will not be as easy as it seems, I list four key points to help you. All of them based on common sense.
emergency reserve
You only become an investor after setting up an emergency reserve, which is nothing more than a liquidity cushion for unforeseen circumstances.
Unexpected events are more recurring than we realize. Who could foresee a pandemic in 2020, with serious damage to the health of the population and a strong impact on the global economy. Not even the most pessimistic could imagine an event of such magnitude.
As addressed by Morgan Housel: “we must use the surprises of the past to admit that we have no idea what may happen in the future”.
And in personal life, these unexpected events, or even foreseen ones, but without a specific date, are commonplace, such as: job loss, income reduction, new profession, leave, moving to another city, accidents, health expenses, among others. others.
Therefore, it is essential to have a few months of fixed monthly expenses saved for possible emergencies. The number of months varies by individual. What is job stability? How many sources of income do you have? Are you single or married? Do you have children? But generally speaking, 6 to 24 months may be sufficient.
The emergency reserve must prioritize two of the three pillars of investments – which are security, liquidity and profitability. The focus here should be on security and liquidity.
After all, the money must be available for immediate redemption and not suffer from market fluctuations. Post-fixed investments (indexed to the CDI) with daily liquidity or the Selic Treasury are the most recommended. The intention is to guarantee purchasing power, or to minimize the inflationary effect over time.
goal science
It is convenient and timely to have a clear assessment of the investment objective. Because each one will demand an asset class.
If the intention, for example, is to change cars within 1 year, it is not appropriate to allocate in shares. During this period, there may be a strong devaluation of the securities and erode part of the resources destined for this purpose.
Now, if the plan is for retirement in 25 years, exposure to variable income becomes a great option, as it presents a greater expectation of return in the long term.
Short- and medium-term objectives require assets with no or low volatility, and long-term objectives are compatible with riskier assets and greater prospects for future returns.
In short, the smaller the projected asset usage range, the greater the exposure to fixed income should be. And the more distant the forecast of use, the greater the exposure to variable income.
If the expected redemption is very short/short term, it is consistent to be 100% exposed in assets without volatility, and investment in the stock exchange is recommended for a period of more than ten years.
Risk profile assessment
The analysis of the risk profile makes it possible to create an investment portfolio consistent with the level of acceptance of volatility and even the need to face market movements.
Some aspects should be considered, including: age, investment term, degree of technical knowledge, ability to withstand fluctuations in stocks and history as an investor.
In moments of euphoria, that is, in bull markets, people tend to overestimate their risk profile. In practice, they become more prone to a more aggressive profile than they have. With markets in decline, the opposite happens. They tend to adopt a more conservative profile.
Therefore, you need to make a rational assessment and tell yourself the truth, or at least not lie. Try your best to move away from the current moment of the economic and market cycle to get closer to the real risk profile.
Technical knowledge
A known path is easier to follow than an unknown one. Understanding the financial market in a technical sense will increase confidence in the face of its fluctuations and will also facilitate decision-making.
The understanding of risks, the dynamics of asset classes, the relevance of diversification and exchange rate protection, economic cycles, tax issues; allows more aggressive exposure without necessarily increasing risk.
Knowledge about these aspects contributes to the formation of the investment portfolio.
Nobody can know everything, but it is possible to work to understand at a solid basic level the most relevant points of the field.
Final considerations
After assessing the guidelines addressed, you will be able to decide more assertively which percentage is appropriate for fixed income and variable income — and you will have a portfolio aligned with your objectives, your needs and the ability to absorb risk while maintaining your quality of life.
Investors’ well-known “stomach upset” is usually caused by excessive allocation in the stock market. Portfolio volatility is controlled by fixed income, as it has greater predictability.
Investing is simple, but not easy. The real learning will be on the battlefield. The experience, which will be gained along the way, will lead to the necessary maturity as an investor. Some lessons need to be lived before they are understood.
Finally, the tips mentioned serve as a guide and are part of the sphere of personal competence. Attention needs to be focused on what is under your control. The intention was to collaborate in order to minimize or avoid future regret and facilitate the process.
Source: Moneytimes
I am an author and journalist with a focus on market news. I have worked for a global news website for the past two years, writing articles on a range of topics relating to the stock market. My work has been published in international publications and I have delivered talks at both academic institutions and business conferences around the world.
