What are smart investments? Know the best option

Learn what smart investing is, how it works, and everything you need to know to start investing

Investing should be more than a goal, and turning it into a habit can be extremely healthy for your finances. This is mainly because gains from small investments can pile on fast and lead to a happier life in no time.

Even though the world of investments has seen an increase in newcomers, many are still wondering why they should invest in the first place, how to put in the money, and what are the best investment options.

If you are part of this group of people who want to make their first investment but still don’t understand much about the subject, keep reading to learn more!

Up ahead we will explain all the details of how investing works and what you should know before you start.

What are investments?

First, let’s understand what investments are and how they work. Investment is any application of resources that results in a future return. Therefore, this concept can be applied to intellectual, social, natural, and also financial capital.

Imagine that you are investing your time and money in education which will give you the knowledge and skills necessary in the future. If this is the case, we’re talking about an intellectual investment.

In the financial market, the term investment refers to money invested in certain assets that generate a financial return, which we can also call profit.

It is important to understand some terms that are fairly common in the financial market and that differentiate investments one from another. See below:

  • Return – the profit you get after investing your money and holding for a certain period of time;
  • Liquidity – the time the investor waits to receive the amount they invested;
  • Risk – the possibility of losing money when investing, with some investments offering more risk than others;
  • Saving – the habit of choosing not to spend money, but in itself not an investment

Now that you know what investments are, you should also know that assets are classified into two categories. Assets can either be:

Fixed income: what is it?

Fixed income is the investment category that classifies assets with a more stable return. This way, the rate can be pre-fixed (does not vary from the beginning to the end of the investment), post-fixed (varies according to an index, such as the IPCA and CDI), or hybrid (with characteristics of the previous two). Because of this, it is easier to predict how much you will earn at the end of the investment.

These investments are usually issued by the Government itself, as is the case of the Direct Treasury, or even by private financial institutions, such as the CDB, LCI, and LCA, among others.

If you opt for any of the above, you apply a certain amount for a certain period and your money will grow in accordance with the rate. It is used to finance public or private projects. Periodically or after the investment period, you can redeem the invested amount along with the income you made.

This type of investment is highly popular among conservative investors.

Variable income: what is it?

Variable income, on the other hand, is the category of investments in which income isn’t fixed, so there is greater unpredictability about profits. On the other hand, these assets may present a higher-than-expected return if you time the investment right.

However, you have to understand that variable income assets offer a greater risk of losing your money. In the same way that you can profit a lot, you can also lose immense amounts of money, all off of a single fluctuation of an asset.

Some of the best-known variable income assets are company shares, investment funds, FIIs (Real Estate Investment Funds), ETFs, futures markets, cryptocurrencies, and exchange rates, among others.

This type of investment usually attracts aggressive investors.

Why is investing your money a good option?

Investing is not just about making more money or accumulating wealth. In fact, it’s often also about having a better life, comfort, and a stable future.

There are several reasons to start investing, but the main one is making your money work for you. Instead of leaving it stored in an account that yields very little, such as savings, you can make that money multiply by choosing investments that will fully utilize your money.

Here are the main reasons why it is worth starting investing right now:

  • Allows you to build your family’s heritage;
  • Allows you to obtain material goods, such as your own home and car;
  • Helps you achieve greater financial security for your family, especially when there are unforeseen circumstances;
  • It opens the doors to a more peaceful and comfortable future;
  • It makes dreams come true, like traveling, for example.

These alone are enough to convince someone to start investing, and if you’re not on board yet, just keep reading.

How to choose smart investments?

If you are determined to start investing, you may want to find some tips on how to choose the best investments for you. You should also focus on following each of the steps below:

Organize your finances

Start by organizing your finances. It is very important that your financial life is organized when investing so that you know exactly how much money you’re working with every month. By doing this, you can make the best possible use of all the money left over from your budget.

And of course, organizing your finances also allows you to cut unnecessary expenses, such as impulse purchases, subscriptions that are not used often, and even excessive consumption of delivery or food in restaurants.

Create goals

Another important step before starting to invest is to create goals for your investments. For example, if you’re planning on buying a car in two years, make an account of how much you will need to invest every month until you’ve reached your goals. Don’t forget that you can use investment simulators to gauge how much you’ll earn from the investment instead of risking it all without a good reason to do so.

Regardless of what your goal is, it’s important to know why you’re investing, for how long, and the monthly amount. This will help you stay focused on your investment.

Know your investor profile

You also need to know your investor profile to choose the assets best suited to your circumstances. Know that there are three types of investors, namely: conservative, moderate, and aggressive.

The conservative profile is equivalent to an investor who does not like to take risks, prefers more stable investments, and only invests when there is a certain amount of security. The moderate profile accepts taking calculated risks but still doesn’t give up having part of its capital invested in more stable and predictable assets. Finally, the aggressive profile corresponds to the investor who prefers to earn more, even if it may cost him everything he’s got.

Start investing

After all these steps, it’s time to start investing. In that case, learn more about each financial asset, search for safe and reliable brokerages, invest your money according to your investor profile and rely on companies that can help you enter the world of investments

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