01 April 2022

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How to invest your money

Author: Luigi Campopiano

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We must be aware that there are needs in the future, and it is advisable to set aside something in the perspective of greater future consumption or to deal with any unforeseen events or important projects: you need to save, and the savings can be used for investment. Investing uses part of your savings to purchase financial instruments and products that allow you to maintain or increase your wealth and consume it in the future (you can also use the savings for supplementary pensions and/or insurance investments).

Investing is an ageless process that should accompany us throughout our life. Anyone can have financial resources that can be reserved for financial investments, and it is important to be familiar with certain concepts. You can start by analyzing your personal and/or family budget: with income higher than periodic expenses; you can free up resources to be used for savings and investment. Existing net wealth could also be reinvested to achieve specific objectives: e.g. accumulate a certain capital over several years; undertake a more targeted project that foresees a future outlay; a supplementary pension; maintain the purchasing power of an already existing sum (if there is inflation, the spending power decreases: therefore, the money left under the mattress loses value). In investment decisions, one of the objectives to be achieved is the possibility of maintaining or increasing the purchasing capacity over time.

Investing is important and must be done knowing some basic concepts: the fundamental rule in the financial field is that expected gain and risk (losing part or all of the money invested) go in the same direction (the higher the expected return of an investment, the greater the risk). Once you are willing to face the risk, the propensity to it, and how to diversify your investments to reduce the risks, you can proceed with the further steps to put yourself in a position to choose the best solution for your needs.

Investing requires knowing which instruments are best suited to the objectives: there are different types (shares, bonds, mutual funds, insurance investment products), each with its own characteristics. It is essential to understand what and how you are investing: read the documentation required by the regulations to protect the investor; collect any other useful information for a better understanding and, if this is not enough, contact those who can give good advice based on their experience and professionalism. Never forget the golden rule of diversification: don't concentrate all your money on a single instrument and choose different investments. Diversification makes it possible to reduce the overall risk of the portfolio.

It is necessary to compare, that is, to evaluate and compare the characteristics of the instruments and those of the issuers of the instruments. Once the investment has been made, it is necessary to monitor the progress and be ready to review the strategies.

For balanced financial planning, protection from contingencies must also be considered. If you decide to use the savings in a pension annuity, you will have to make further and specific assessments. A strategy is valid when it is based on a single concrete case, and the market is dynamic and always develops new financial instruments. There are tools of all kinds (including real estate investment and supplementary pension), and therefore it will be essential to combine their characteristics with needs.