What do you need to know to make the best decision?
To make the right choice, it is important to understand certain aspects of investment.
Investment involves committing capital for a specific duration, anticipating additional returns. There are various investment categories to be familiar with, along with specific parameters that need to be considered before opting for an investment with a small initial capital. The following factors should be taken into account in order to determine an investment plan suitable for a small investor:
1. Minimum Initial Capital
Evaluate the investment potential of a product based on the required minimum initial capital. Some investments, such as stocks or bonds, can be made with small amounts. Investing in the stock market allows you to purchase even a fraction of a company's value.
2. Risk/Investment Risks
Consider the level of risk you are willing to take. This decision depends on various factors beyond the capital available for investment. Conservative or small investors with limited capital should avoid high-risk investments. Regardless of the portfolio size, diversification is a key risk management strategy, involving investing in products with different risks and returns.
3. Investment Liquidity
Assess the ability to liquidate your investment or acquire assets when needed. Liquidity is particularly important when initially building a portfolio with limited resources. Buying or selling stocks is now easily accessible through online platforms from PCs or mobile devices.
4. Costs
Evaluate whether an investment incurs additional costs such as management fees, acquisition or liquidation fees, etc. Being aware of investment costs beforehand is essential for making informed decisions.
5. Information about the Investment
When considering acquiring an asset or investment product, gather comprehensive information about it. Companies participating in the stock market are required to publish detailed financial tatements audited by certified auditors and disclose significant events that impact their performance. This information contributes to understanding the value of an asset. In contrast, small businesses may involve uncertainty about their future performance. Less experienced investors should avoid complex financial products they don't understand and instead choose investments that align with their needs and investment profile.
As investors with limited initial capital, the first investments could be tradable mutual funds (ETFs), which are a subset of mutual funds. It's important to note that mutual funds do not guarantee returns, and past performance does not guarantee future results.
By following these steps and starting your investment journey, you can begin building financial resilience. Remember to continuously educate yourself about investments and adapt your strategies as you gain experience.
IMPORTANT: MUTUAL FUNDS DO NOT GUARANTEE RETURNS, AND PAST PERFORMANCE DOES NOT ENSURE FUTURE RESULTS.
Source: Financially Empowered newsletter
