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Do you want to increase your wealth and make the right decisions from day one? We give you some useful tips.
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Do you want to invest money? Then you should have a basic understanding of the financial markets and their structure in order to avoid mistakes. The more you know about individual markets and financial instruments, the lower the risk of making the wrong decisions.
The umbrella term “financial market” encompasses all the submarkets and their various tradable financial products. They include:
Every financial market has its own opportunities and risks. Individual financial planning will help you determine which market is best suited to your investment strategy. The main advantages of stock exchange trading on the capital market are transparent pricing, efficient settlement, and the disclosure of all relevant corporate information.
Financial markets offer a wide variety of investment categories, also known as asset classes. The most important are shares, bonds and investment funds.
In addition to these traditional investment categories, modern products such as ETFs (exchange-traded funds) are becoming increasingly important. ETFs track an index and allow investors to build up a cost-effective, broadly diversified portfolio.
Other less common investment categories include real estate, commodities, precious metals, cryptocurrencies and many others, as well as the popular option of saving in a money market account or fixed-term deposit account – although these types of account generate little or no return.
To find out which investment categories are right for you, you should start by defining your risk profile. This reflects your risk tolerance – the level of risk you are willing to accept – and your risk capacity, or the level of risk you can bear given your financial circumstances. Once you have determined your profile, you can use it as a basis for developing your investment strategy.
It is impossible to invest without risk. This means you should carefully assess the risk associated with your investments. High returns sound tempting, but they usually come with greater risk. Assess the level of risk associated with an investment and compare it to your strategy.
If the risk is too high, you’re better off refraining. Make sure your also consider your portfolio mix: if you already have several low-risk investments, you can afford to be a little bolder. Over the long term, a well-diversified portfolio will generate better risk-adjusted returns than individual asset classes.
In general, diversification is crucial for offsetting risks. Check whether you already hold similar investments, and make sure you have a balanced mix of asset classes, countries and sectors.
Review your custody account regularly, as fluctuations in individual securities can shift the overall balance. If the weightings no longer correspond to your strategy, make targeted sales and purchases to restore diversification. Our team of consultants is here to help you.
When it comes to investing, your investment horizon is one of the most important factors for success. Short-term price fluctuations become less significant over the years, as they tend to even out over extended periods of time.
For example, if you invest your assets in the MSCI World global stock index for a month, your probability of loss is around 40%.
The index comprises nearly 1,600 shares from 23 developed countries and includes some of the world’s best-known companies. With a longer investment horizon of ten years, the probability of generating negative returns is just under 5%. And with a 20-year investment horizon, the probability of suffering a loss drops to nearly zero.
In principle, the longer the investment horizon, the lower the risk of loss – and the less impact short-term volatility will have on your investment. You should base your investment decision on your profile. This is because risk tolerance, expected returns and investment horizon go hand in hand – and ultimately help determine the appropriate investment category. The basic rule is:
Patience beats tactics: around 80% of investment success depends on the right strategy – not on short-term trading. Stick to your individual strategy with discipline and don’t let short and medium-term price fluctuations rattle you. This is especially true if you are confident about the long-term earnings potential of your investments.
What are your goals?
Ultimately, what matters most for your investment is how you prioritize your goals. Is your focus on liquidity – i.e. the ability to access your savings whenever you like? Are you aiming for the highest possible returns? Are you more concerned about investment security? These three popular investment goals are always in competition with one another, because no single investment can offer high returns, maximum liquidity and the highest level of security all at the same time. So when investing your assets, you need to choose one or two of these goals.
Of course, no one is immune to getting things wrong. Being aware of potential mistakes is the best way to avoid them. Inexperienced investors in particular risk repeating the same mistakes if they don’t pay enough attention to their investments.
Common investment mistakes include:
Don’t make emotional decisions
The biggest source of error is to let yourself be ruled by your emotions. Decisions driven by emotions (“behavioral finance”) rarely lead to success, often due to distorted memories or false expectations. An investment journal can help you to keep track of your decisions. Stick to your strategy to make sure you avoid making emotional mistakes.
Financial market trends indicate the direction of the markets and provide valuable insights into investment opportunities. Understanding them allows you to assess opportunities and risks more accurately and make informed investment decisions.
News, economic indicators (such as GDP growth, the unemployment rate and consumer confidence), political events and central bank decisions all play a key role in market analysis. Company reports and financial key figures are also useful for evaluating companies and industries – but the interpretation of this information often remains subjective.
For example, if a listed company increases its profits by 25% and its share price still falls, expectations were probably even higher. If you interpret reports like this correctly, you can avoid making the wrong decisions. It’s also worth seeking advice from experienced specialists to ensure long-term investment success.
The right investment strategy depends on several factors: the investor profile, risk tolerance and capacity, product knowledge, complexity and diversification. The main thing is to create a harmonious balance of different financial instruments.
Every investment has its own opportunities and risks, which is why it is important to carefully consider its characteristics. A long-term strategy tailored to your goals protects against short-term decisions and improves your investment success. It’s worth trusting in the expertise of financial professionals.
Know your money is in safe hands
Invest with UBS and decide how much advice you want from us and what decisions you’d rather make yourself. We look forward to assisting you
Investing money is challenging and requires not only knowledge, but also discipline and patience. If you want to invest successfully over the long term, there are a few principles you should keep in mind:
You can lay the foundations for long-term investment success with forward-looking financial planning and a flexible strategy tailored to your situation.
Arrange an appointment for a nonbinding consultation, or if you have any questions, just give us a call.
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