There are as many conceptions about what the Stock Exchange is as there are savers and investors in the world. In the extremes, some remain with the idea that it is pure timba and others see it as a source of passive income and returns that are not achieved anywhere else. So. What is the stock market, bane or salvation? The answer is both.
The capital market offers us a multiplicity of applications tailored to our tastes: if we look for a quick “twine”, regardless of the risks, it can become a much more attractive roulette than the casino. If we are more conservative and we are committed to long-term investments, it can become an ideal environment to generate permanent income over time.
In today’s column we will analyze three stock tips that should be burned using the approach of an investor who does not seek to get rich from one day to the next, but to add a new source of income to his life and, what is even more important, generate surpluses of money that, when reinvested, will generate more and more savings.
Tip 1: 80/20 between flow and capital
When we talk about the stock market, we do not only refer to the world of shares (equities). We also talk about preferred and preferred bonds and shares (fixed income).
They are not usually the most popular among the “purses”. Many tend to get lost in the sea of actions and anxiously seek that role that makes them earn a lot of money, with the dream of telling the rest before enjoying it. There are even those who prefer to invest for brief periods in-stock products that double or triple the performance of a group of companies or a commodity, but the risks, in that case, are very high, as well as commission costs.
In this column, we are not looking for such bets (they are really bets) but those assets that for financial adrenaline lovers are nothing more than slow and monotonous wagons. But you know what? Those carts are the only ones that take us where we want to go, so we better learn how they work.
Preferred bonds and stocks have a start date and an end date (unless they are perpetual actions), and the payment of coupons or dividends is known in advance by the investor, both in amount and in date. Finally, with exceptions, prices are less volatile than those of common stock. This means that bond quotes are more stable.
For all this, the investor who is looking for an income in the form of passive income should grant high participation to this type of instrument in his portfolio. At a minimum, we talk about 80% of fixed income versus 20% of variable income.
When the market is in bullish, fast and furious mode, the investor will feel that he is going in a cart while the rest travel in a Bugatti Veyron Super Sport (431 km / h). But as the Stock Exchange is, like the economy, markedly cyclical, and capitalism needs recurrent crises to reinvent itself, at the time of the steep falls this cautious investor will feel at a good pace while the rest crashes against the guardrail of the first sharp curve.
The 80/20 weighting in your portfolio spoils the utopia of becoming a millionaire overnight, but it guarantees you a gradual and almost constant growth of your assets in the long term.
Tip 2: Learn to diversify beyond conventions
The trite phrase “you don’t have to put all the eggs in the same basket” little and nothing tells us about how the investment diversification strategy should be carried out. Consequently, we offer you these clear and concise rules:
- 20% industry cap: Not having more than 20% of our total investment in the same industry. For example, if we allocate 20% of our money to Coca-Cola debt bonds, investing another 10% in Pepsi Co bonds would mean adding more similar risk to our portfolio. The same applies to any other type of industry. Following this rule, we will have at least five different industries in our investment portfolio, such as the following sectors: financial, mass consumption, laboratories, technology, and construction.
- 10% cap per asset: Do not invest more than 10% in the same asset, no matter how much you obnubilate us. This rule forces us to have at least 10 different assets in the investment portfolio.
Clarification: the commandment applies to both fixed income and variable income jointly. For example: if I have bonds from an aeronautical company and then I want to buy shares of another company in the same sector, I should know that it is not convenient to exceed the 20% cap set for each industry.
Tip 3: Resist trading pressures
The specialized media will want to generate more clicks to bill more for advertising. Consequently, they will publish sensationalist news that will make you believe that everything goes to hell and you have to sell or that the market can be accelerated and it is your last chance to buy. At the same time, your account executive will encourage you to operate, but not explicitly but in a surreptitious manner, since your profit will be in the commissions generated by your sales transactions, not how much you earn or lose with each operation.
On the other hand, your friends and acquaintances who also invest will tell you their great successes, but do not pify them, generating in you the false idea that the more active you are, the more profits you will obtain. Otherwise, you will be missing opportunities to earn a lot of money.
In the middle of this neurotic world, you are with your savings. At that time you should remember that your interests are different from those of these people. Totally different.
I have been in the stock market for 25 years and, if you ask me what is the most important lesson I learned, I will pronounce the following: to make a profit on the stock market with short-term investments is ten times more difficult than to achieve a good harvest in the long.
Taking a position and respecting it beyond the vagaries of the market and the pressures of friends, media and supposed experts is the main challenge of every person who really wants to succeed in their financial life.