To know where and how to start investing, we must first understand what our investor profile is. Defining this profile right from the start is a fundamental line to ponder on how we are going to apply our capital by type of assets according to our profile and objectives.
And to start this discovery you have to ask some questions about yourself. Do you have a high tolerance for risk? How long do you want to keep your capital invested? Are you in an economic situation that allows you to make a long-term commitment to your investments? After considering the answer to these initial questions, it will be possible to fit into one of the different profiles.
What characterizes an asset and allows you to discover which investments are most appropriate for each investor can be summarized in three factors: profitability, liquidity, and security.
- Profitability – the possible gains or profits from an investment. Normally there is a correlation between profitability and risk, where higher profitability is associated with a higher degree of risk.
- Security – the risk associated with the asset. The greater the risk, the greater the possibility of loss.
- Liquidity – How easy/fast it would be to convert invested in a particular asset into cash.
This profile, as the name implies, is suitable for someone who prioritizes safety and liquidity over profitability. Naturally, someone in this framework will be attracted to safer investments and therefore lower profitability prospects. New investors have a greater tendency to demonstrate this type of profile, which will evolve as they reap the results of their investments.
As a practical example, we could say that a conservative profile would have over 70% of its portfolio in safer and more liquid assets, like time deposits and savings certificates, and the rest in more profitable assets like stocks or bonds, where bonds would probably have the predominance in the remaining percentage.
The balanced investor is reflected in those who seek harmony between the conservative and aggressive profiles. They are willing to risk a little more in higher-yielding assets for a longer period of time and with a higher degree of risk.
In this case one could fit into a 50/50 portfolio, that is, about 50% of the capital in assets such as time deposits and savings certificates, and the remaining 50% in more profitable assets such as stocks or bonds, showing a greater emphasis on stocks.
Above all, the aggressive investor gives priority to profitability. He is usually a more knowledgeable investor and is willing to give up the security and liquidity of his assets for higher returns.
Eventually, this type of investor would have a smaller portion of his capital invested in guaranteed return products, and with a distribution between 60/70% in assets with higher risk, but with the possibility of a higher return such as stocks, ETF’s or even cryptocurrencies.
This simplified but competent categorization of the three major investor profiles is a tool for reflection to start planning investments according to our personality, knowledge, and ultimate goals.
We easily realize that a profile is not something fixed, and in the financial area change is unavoidable. It is subject to our evolution, experiences, and to the economic and social context itself. So the main idea should be to manage your investments according to your general context.
A wrong investment for you can lead you to unnecessary financial and emotional stress. So the important thing to remember is that there is no one profile that is the same, everyone is different. The best profile for you is the one that suits your life situation.
With this, we are not determining that wrong ideas will constitute irreversible losses, but rather that we should have a background of some study and consideration before each move, in order to avoid unnecessary financial and emotional stress.
Thus, in conclusion, we reinforce that in any of the profiles gains are possible, but to achieve the desired results we have to make a special adjustment to our economic condition and know well our limitations. The best investment of all is to consider.
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