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Are there safe investments?
You may wonder if there are safe investments , such that we all crave. Well, this article gives you a real expert answer.
This is a guest post by Marc Alomar (see bio at end of article)
Are there safe investments?
Many of us want to put our money to work so that we generate passive income , either to gain a bonus or to get the long - awaited economic independence . And for that, we know that we must invest , whether in real estate, private business or financial assets such as listed on the stock exchanges, among others.
We are also aware that the higher the returns we get with our investments , the faster we will reach our economic goals. However, there is another part of the equation that slows us trying to get that perfect profitability: the risk of losing money .
And this inevitably leads us to ask ourselves: Are there safe investments? The answer is a clear and resounding NO. There are no safe investments 100% , as always, in one way or another, our money will be threatened by one of the major types of risk I'll tell you then.
The two major types of risk you face your money even if you do not invest
There are two major types of risks for which it is not possible to speak of safe investments . The first is the best known and feared by people who want to start investing: the risk of losing money directly .
This risk is realized when you sell something (property, shares of the Exchange, or any other property) for a lower price at which you bought it. In these cases your total assets is reduced directly, because you have less money than you had before buying.
But there is a second type of risk that often goes unnoticed by the vast majority consider only those who already have some experience in the world of investing: the risk of losing money indirectly .
As you know, inflation makes prices of goods and services that increase over time, so whenever you need more money to buy the same things, or what is the same, with the same amount of money can buy fewer goods and services. Technically this is known as loss of purchasing power and, while not directly lose money, yes you lose power indirectly buy less with the same amount of money.
Well, many people still believe that bank deposits (along with other financial products) are " safe investments " because they guarantee your money up to a certain amount. But what they are not aware of is that only are given one of two types of risk.
They forget that most of the time deposits offer them such low returns that fail or compensate for inflation, which means your money loses purchasing power. That is, if they can not lose money directly, said tanks and other products assure themselves lose them indirectly.
So you should get your money from the bank and put it under a tile? Of course not, because then not only forays the risk of being stolen, you burn it or misplace, but you could be sure that inflation would make this lost almost all their purchasing power in a few years.
The following two graphs you can see the loss of purchasing power of € 10,000 over the years with a small 2% inflation and a moderate 5%:
Note that each year the loss of purchasing power is greater, because it adds to previous years. In the first example, they have € 10,000 after 100 years the purchasing power of € 1,380 today. And in the second, only 76 € today.
The conclusion we can draw from this is clear: not only are there no safe investments, but have stopped your money without generarte income is not an option because of inflation .
With this in mind, do not you think your best bet is to invest with a strategy that allows you to put it to use with minimal risk of losing directly and will also ensure a higher return than inflation as recurring revenue?
And you know what? This strategy exists, it is called Investment Dividends and I will present below.
Investment in dividends
Dividends are part of a company distributes profits to its owners, technically known as shareholders. Thus, dividends are a lot of real money that leaves the company directly to your pocket without you having to do anything but keep your actions.
Investment dividends, therefore, is to buy shares listed on the Stock Exchange with the intention to enjoy income through dividends . If you compare with real estate, it would be equivalent to receiving income through rents, with the difference that the dividends are one, charge two or three times a year.
And how can the dividends near that ideal goal would be safe investments? For you to see clearly, then I'll show you how you can, in practice, use investment in dividends to minimize the two major types of risks that continually threaten your money.
How to minimize the risk of losing money directly by investing in dividends
In practice, if you choose to follow a dividend collection oriented strategy, you have two ways to minimize the risk of losing money directly to get as close as possible to secure investments:
- Long-term investment
- Buy only quality companies
Let's look at each in more detail.
1. Invest long term
If you want your money will generate stable and recurring income indefinitely, your best option will also invest an indefinite time horizon . In other words, you should invest long term . Remember to collect your dividends should hold only your actions, so if you want to enjoy them year after year, you should keep your actions.
Although it seems obvious, this has a much deeper involvement: the idea of keeping your investments regardless of whether the market price rises or falls . If you were to buy an apartment with a very clear objective to collect rents, right not to sell it just because someone offered you a higher or lower price the next morning? Because the idea is the same with your actions.
2. Buy only quality companies
Not all businesses serve you if you want to invest in dividends , let alone if you want to keep the risk level of your investments as low as possible. And although you know that there are no safe investments , if your goal is get as close as possible to them you will be able to invest your money in quality companies .
This means trusting your money only in companies that earn more and more money, be financially sound and also have good prospects for the future . And, since your goal is to collect dividends, you must also focus on companies that are able to increase them year after year.
Only buying good companies will reduce greatly the risk that some of them have problems that require you to reduce or even eliminate the dividend. Therefore, the more quality have your investments, the more stable will be your income through dividends and come near you safe investments.
If you want to invest the money that you worked hard you gain maximum safety , I invite you to meet my guide Learn to identify the best companies in the Stock Exchange: a foolproof way to know what stocks to buy , where I introduce you step by step my own analysis methodology to determine whether a company is quality and decide whether to invest in it.
Click here to learn more about the guide
How to minimize the risk of losing money indirectly by investing in dividends
Now that you know that to reduce the risk of losing money directly must invest long term in quality companies , I'll tell you how dividends can also help minimize the risk that this miss indirectly.
Recalls that inflation is the culprit that your money loses purchasing power with the passage of time, so you should focus on getting a return above inflation via dividend.
The dividend yield is calculated very easily by dividing the dividend you are paid annually by each of your actions (DPA) between the price you paid (or will pay if still not purchased) for your actions, and multiplying by 100.
For example, if your shares will pay an annual dividend per share or DPA of 5 € and you pay 80 € per share, the dividend yield on your investment will be 5 € / 80 € x 100 = 6.25%. This means that while you pay an annual dividend of 5 € for each of your shares, the dividend yield on that investment will be 6.25%.
You should also know that the dividend per share paid by a company DPA has nothing to do with the price at which its shares are listed. Firms set the annual DPA to pay its shareholders based upon the profit of that year, which is independent of the price at which its shares are listed.
Remember that when shopping Stock Exchange shares you are buying actually a part of owning a business, as you could buy a part of the salon where you cut your hair or your favorite restaurant. The price you pay for your actions is just the cost should assume to be entitled to collect those revenues called dividends.
Therefore, if the DPA is set each year based on the benefits they get business, it is easy to see that the lower the price you pay for a greater share will be your dividend yield.
In the example you commented before, if instead of paying 80 € for your shares will pay 70 €, the dividend yield on your investment would be 5 € / 70 € x 100 = 7.14%.
So, apart from long - term investments in quality companies , if you want to make sure you get a higher return than inflation (and thus reduce the risk of losing money indirectly), you must buy your most cheap stocks possible, so which is achieved especially during periods of major stock market declines.
Advantages of investing in dividends
Investment dividends not only lets you get closer to the dream safe investments, but also lets you enjoy a number of advantages worth you know.
1. Do not generate additional costs
If you choose to the appropriate broker, as I tell you this step by step tutorial with everything you should do before you start investing in the stock market , keep your actions will not cost you anything. You only pay the buying commission (a few euros) and you will receive dividends indefinitely.
2. It requires little dedication
You do not want to spend the day at the computer more stress for every little movement in prices? For the investment dividends will come in handy , because once you've done the previous work of deciding which companies to invest and at what price to buy their shares will not have to do anything else.
Investment strategies dividends is less time - consuming , although in this respect, I recommend at least an annual review to verify that the company remains quality.
3. You can increase your profitability year after year
If you invest your money in companies that earn more and more money and want to distribute among its shareholders, your income through dividends they will grow year after year, thus increasing profitability on your initial investment.
For example, if you buy shares of companies that increase their dividend per share or DPA an average of 7% annually, in 10 years you will be charged double dividend at first. You recovering the above example, if the first year you paid a DPA of 5 € and your actions will cost 80 €, you had a return via initial dividend of 6.25%.
Now this is the first year, because if the DPA increases an average of 7%, after 10 years you will be paying a DPA 9.83 €, representing a return of 12.3% compared to your initial investment (9.83 € / 80 € x 100 = 12.3%).
Obviously, if you 're investing time more and more money , your dividends will grow even faster. And remember, the lower the price you pay for your actions, the higher your initial dividend yield and increase your income over the years.
Conclusions on safe investments
As you have seen, but safe investments do not exist, investment dividends lets you enjoy a higher return than inflation, receive real income into your account and, at the same time minimizing the risk of losing money both directly and hint.
So you know, if you want to invest at low cost without having to assign him much of your time (a part of the training and initial practice) and increase your income year after year, investing in dividends is a very good alternative to create a heritage that work for you .
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