Safe investing, does it exist? Let’s talk about risk. In fact, you’ve seen this come up several times in our articles when we talk about investing. Investing and risk are inextricably linked. However, it sounds scarier than it is. Because you can never completely avoid risk, you can minimize it. And that’s what we want! After all, with investing, we want to make as much money as possible and lose as little money as possible. So risk versus return. But how do you minimize your risk when you invest? In other words, how can you invest safely?
3 investment rules
At ELFIN, we always follow 3 investment rules to invest as safely as possible:
- The
spreading your portfolio
- Long-term investing
- Keeping your costs low
Spreading out your portfolio
You have to imagine that if you have shares of 1 company in your portfolio, the success of your returns also depends on that one company. By this we mean that when these stocks rise in value, this is obviously positive for your portfolio value but when these stocks fall in value it is thus exactly the other way around. Indeed, when these stocks drop very much to perhaps below the price at which you bought them, it does not make you happy.
So having shares of only 1 company in your portfolio carries a lot of risk because it can only go two ways: up or down. And especially the downhill part creates the risk of losing money.
Therefore, it is wise to spread out your portfolio. This means that your total shares that you will have in your portfolio will be spread across various companies from different sectors. So you are not only going to spread your shares across different companies but also make sure that these companies have their business in different sectors of the market. Because within sectors, companies can fluctuate in their value (take galapagos as an example in the medical sector) but also sectors can do a little worse in the market at a certain time (for example, oil at the time of the corona lockdown).
Spread 2.0
But spreading your investment portfolio isn’t just about stocks, of course. Spreading is also done by investing in ETFs, real estate, bonds and the like.
When you provide a well-spread portfolio which consists of the above components you are more resistant to fluctuations in the value of your investments. After all, you feel less of a bad day in the stock market when your total investments include real estate and bonds.
Long-term investing
It is, of course, a utopia to think that your investments will remain a fixed value at any time. No, investments fluctuate. This is because the value of investments are subject to the market and we all know how fickle the market can sometimes be. Therefore, we always assume long-term investing.
Looking at the investment market in recent years, we see peaks and valleys. For example, due to pandemics or economic crises. This cannot be avoided and is part of the economy and the “supply and demand” principle. The good news is – and this is why we are fans of long-term investing – that despite all the dips last decades, there is an upward trend in the value of the investment market.
Keep your head cool
Long-term investing requires that during times when things are not going so well with your investments calmness, confidence and tranquility preserves. Fluctuation is part of the game and unfortunately we have to sit it out. By investing for the long term, despite that fluctuation and “panic moments,” you ensure that the risk you run is also reduced. Because so if we look at the last 100 years we see an upward trend in the world of investments. So one year is not the other, and it usually works out in the end. Thus, historically, things have always worked out and dips in the market have always recovered.
Keeping your costs low
There’s nothing more annoying than when you’re earning nicely on your investments transaction fees are just around the corner. We all hate bills, so to speak. Now, transaction fees are not always completely avoidable of course because making a trade on the stock market is something you pay fees for.
Ps: there are brokers where you can make free trades, such as at
BUX Zero.
To keep these costs as low as possible, it means buying smart but also thinking about which investment party you do this with. In fact, some parties charge not only transaction fees but also a service fee, currency fees or fees when you want to withdraw your money.
So before choosing your investment party, determine carefully what fees they charge and choose the broker that is most favorable for your investments. The lower the costs you incur, the higher the return will be from your investments and that means more money.
Invest wisely
So investing is not something you just do overnight. Investing is done by weighing the risks against what it will get you. And you try to minimize those risks. By observing these 3 basic rules you will be well on your way but remember; risk will always remain and so there will always be a chance that you will lose your deposit! Keep that in mind.
