Investing in the stock market without risk does not mean investing with the certainty of a return, as stock market investments always have a certain margin of risk.
The intent of this guide is not to provide you with a golden rule for generating profits, but to show you the right way to move safely through the trading and stock market investment landscape, while limiting risks to a minimum. Risks that thus remain related to your investment choices.
How to invest safely
As anticipated, safe investing does not mean investing with the certainty of generating a positive return, and, the first thing you need to do to invest safely is to know what you are doing.
In order to invest safely, you need to be clear about what you are doing, where you want to invest, how you want to invest, and what kind of strategy you want to adopt.
Financial analysis experts generally point out two types of investment strategies. The first is classified as an aggressive strategy. It consists of an investment strategy that exposes the investor to high risk of capital loss. Thus with the promise of high profit margins.
The second is classified as a defensive or conservative strategy. This is a strategy that provides less exposure to capital loss. However, it severely limits the chances of generating high profits. Generally, these strategies are meant to preserve one’s assets from inflation.
Guidelines for defining one’s strategy
In order to define one’s investment strategy, it is important to know in advance which strategy one is going to adopt. And to do this one should evaluate the risks and benefits of both strategies.
In the case of a defensive strategy, we will be aware that the profits generated will be slight. But with little risk of loss of capital. On the contrary, in the case of a defensive strategy, we must keep in mind that total or at least partial loss of invested capital, is always just around the corner.
These differences, in the case of stock market investments, result in the choice of more or less solid stocks.
To be more precise, in the case of a more defensive strategy, it will be appropriate to dwell on safe and stable securities. Generally, these are securities of banking giants or large multinationals in strategic sectors, whose history shows stability or at least slight growth.
Securities that are recently listed or that show large variations over time should be avoided. In this case because variations denote instability. And instability makes the future performance of the security difficult to predict.
Instead, for a more aggressive strategy, experts recommend focusing on innovative stocks, in strategic sectors, and fast-growing stocks. Short-term investments are recommended in this regard, so that one can correct the course periodically.
What are the best stocks to safely invest in?
If we decide to invest in the stock market, it is advisable to distinguish the various types of assets that can be invested in. They are generally divided into three categories, namely Stocks, Futures and Bonds.
- shares are a financial instrument of participation in a company. They represent the minimum share in which the company’s capital is divided. In other words, investing in Shares means buying a larger or smaller share of a listed company;
- futures are a forward derivative instrument through which buyer and seller commit at a future date to trade a specified amount of the selected security at a price fixed in advance;
- bonds are a financial instrument that can be likened to a loan. The moment an investor subscribes to a bond, whether government through government bonds, or corporate, through the acquisition of corporate bonds, he or she is lending money. And will be entitled to get back the principal amount advanced. As well as an interest rate paid regularly through periodic coupons.
In addition to these three types of financial instruments, there are many other investment instruments such as savings accounts and savings bonds, or financial certificates.
In the general context, each instrument has its own pros and cons. And, they are more or less suitable for various investment strategies.
Strategies for investing safely
Having made all the necessary assumptions, in order to invest safely, experts recommend a number of procedures to protect one’s investment capital and savings.
The first of these tips is the 5 percent rule. It consists of never investing more than 5 percent of one’s capital. In this case, the returns generated will be slow. But, in the event of unforeseen changes in the market, even if one loses all of one’s invested capital, one will lose a minimal portion of one’s savings.
The second piece of advice is to look for safe assets. Thus focusing on a defensive or conservative strategy, in this way the risks of capital loss will be lower.
The third piece of advice is to diversify your portfolio, spreading your invested capital across various sectors, from commodities to government bonds. This is useful to limit your risks and implementing minimal exposure to the stock market. This is because the stock market, is generally unstable and, even the strongest stocks can go against large downward swings.
By putting into practice all the recommendations of the experts, you will be able to invest consciously and safely. Nevertheless, it bears repeating, there will always be risks. Even if minimal, of partial or total loss of the invested capital.