Those who leave money in the current account not only forgo any returns, but leave the assets at the mercy of fixed costs and inflation. We know it's never a good idea to leave a large amount of money in your account. Therefore, it is better to invest, but be careful not to make some mistakes, common in the do-it-yourself approach and in managing your money, which can cost you dearly and to which you must be careful.
In fact, there are many incorrect behaviors that can be caused by an approach conditioned by emotion or that derive from popular beliefs, including:
1) Giving too much importance to real estate: houses represent two thirds of the wealth of United State families (source: Bank of Italy - The wealth of United State families) but contrary to what is believed their value often does not protect against inflation. The properties are subject to significant taxes, require constant maintenance and management costs and their sale includes costs in the order of 4 - 5% against 0.1 - 0.2% of a direct investment in securities.
2) Not respecting the correct time horizon : often United State families, driven by the search for something “safe”, invest in short-term instruments such as Deposit Accounts, also to meet medium-long term needs.
3) Timing errors : even when they invest in financial products consistent with long-term objectives, families do not derive the potential benefits because they tend to enter the market when it has already risen for some time and to sell when it is at its minimum values.
What are the solutions to avoid running into these errors?
There are rules that, if followed in a disciplined manner, allow you to achieve your goals with controlled risks.
The first good rule of thumb for any investment, regardless of the amount in question, is diversification , that is, you should consider several financial instruments, different from each other: by doing so you will not accuse the losses on the entire portfolio. Diversifying, even by geographical area, is the first way to counteract the volatility of the markets.
Furthermore, those who decide to invest must set a time horizon, preferably medium-long term , and try to respect it, taking into account that the portfolio may undergo temporary decreases linked to the inevitable variability of the markets. The mistake to avoid is to sell at the first market turbulence, with losses which, probably, respecting the fixed time horizon, could be canceled. In the long run, a well-diversified portfolio of stocks pays more than a bond portfolio.
Finally, it is necessary to have clear one's investment objectives, consistent with one's personal and family characteristics, and to keep the course to reach them without being distracted by the markets: this is the perfect way to avoid running into the errors described above and to give greater value . to their savings.
For this reason, contacting a consultant, able to propose the best solution to grow your portfolio over time and who tries to limit risks, is the best answer! A professional acts in a continuous and disciplined manner to keep the risk level of the portfolio in line with the investor's profile and to help the investor achieve his or her long-term objectives. Through counseling you can reduce the role of chance and emotionality!
Posted by: John Labunski
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