Fact or fiction? 5 myths about investments

 

 

These are the 5 most common investment myths in Portugal. Find out what they are and why they may be preventing you from making a profit on your savings.

 

 

Stocks, bonds, funds, real estate, precious metals. Against a backdrop of rising inflation, these and other investment solutions become even more appealing to avoid the erosion of peoples’ savings and obtain a welcome flow of passive income. However, having so many options and factors to consider, choosing the most suitable products for each case can be challenging, not least because preconceptions can drive away investors. These are the main myths about investments that you should clarify before investing.
 
 

1. You need to be an expert to invest 

The financial world today is more dynamic than ever before – rising inflation, geopolitical tension, and a pandemic that seems to be here to stay. In an increasingly sophisticated global market with many participants and influencing factors it is easy to think that you need to be an expert to invest. This is not quite the case, but you need basic investment knowledge in order to make informed choices – known as financial literacy. So, if you take some simple precautions and choose products wisely, you can make your savings profitable even if you are not an expert.

The first rule is to invest in different asset classes, such as equities and bonds. That is why in Banco Carregosa we design investment solutions tailored to the priorities and investment objectives of each client. For example, the Asset Management models offer you solutions with various investment strategies to mitigate risk through significant diversification of investments.

However, if you do not understand how the product in which you will invest works, you should not take the risk. Banco Carregosa has specialised teams of investment experts who carefully select the most appropriate solutions for each client profile and investment objective. This way, you can invest with confidence – even if you are not an expert.
 
 

2. Investing is too risky 

All investments involve some degree of risk – this is why they are graded on a risk scale. The more volatile investments, such as Futures or Forex, are found at one end of the scale, meaning that you can achieve high returns but also possibly lose your invested capital. Lower risk investments such as bonds or conservative management models are found on the opposite end of the scale, where high variable results are not expected.

So there is an appropriate solution for each risk 'appetite'. The key is to understand the risks involved and how they may change over time. For example, investing in funds is less risky than buying individual shares in a single company, because if one holding depreciates in value, it can be offset by the others. In addition, some funds, such as mixed funds, invest in a wide range of assets, such as bonds, shares and property. In other words, you can put your eggs in many different baskets.
 
In Banco Carregosa you will find investment solutions for different investor profiles. For example, Banco Carregosa offers a selection of Investment Funds by risk profile. The Defensive profile is suitable for investors who prioritise asset preservation, the Balanced profile is for those who wish to preserve their assets and seize opportunities, and the priority of Growth profile is asset appreciation.
 
If you have any doubts about what the best solution is for you, you can rely on a fund manager at Banco Carregosa – an investment expert to advise you. With the right information and professional advice, you can mitigate the risks associated with investments and take a calculated risk.
 
 

3. More risk means higher returns

 
"The greater the risk, the greater the return” is perhaps one of the maxims more associated with investment. The only problem is that this is not necessarily true. In fact, the data disprove the idea that, in the long term, higher risk means higher returns.
 
Investment risk is generally measured by volatility, or the degree to which the investment varies in value. A more volatile investment is more prone to larger swings, which can translate into gains or losses. However, equity portfolios with less variation can record higher average returns than their 'riskier’ counterparts. So, rather than chasing risk in the hope of higher returns, investors should concentrate on other important factors such as their investment time horizon and the quality of portfolio management – something our expert team can advise you on.
 

4. The more shares or funds, the greater the diversification

 
You've almost certainly heard that you should diversify your portfolio to mitigate risk, which is true – to a certain extent. When you invest in a large number of stocks, bonds or other assets, any fall in one of these holdings is less likely to have a significant impact on the overall portfolio.

The problem is that there are various definitions of what it means to have a "diverse portfolio”. In other words, it’s not all about quantity. A large number of stocks in one sector offers less diversification than a small group of stocks in several sectors. For example, if you own shares in 1,000 technology companies, your entire portfolio depends on the success of one sector of activity. A portfolio of one technology company and one financial company is more diversified because it is exposed to not one, but two sectors.
 
The same applies to funds. Investment funds could be looked at when you want to diversity your investments within a sector or geography, but also to diversify the investment portfolios of individual investors.
 
You can also opt for investments that tend to move in different directions – known as uncorrelated investments. 

The lower the correlation between securities, the better the diversification effect. For example, imagine you have different unrelated asset classes in your portfolio – such as a stock fund and a gold ETF. This will help smooth your investment journey, ensuring that when some of the investments fall, others will rise. To find out how to diversify your portfolio effectively, get in touch with our expert team.

 

5. Investing requires permanent monitoring 

One of the biggest barriers to investing is the time dedicated to research and monitoring. In addition to choosing the right investments, you need to keep an eye on financial news and track company results to make good decisions at any given time. However, while true, all this work can be minimised.

In fact, permanently tracking the portfolio on your own can lead to you reacting more impulsively to market "noise" (such as new information, releases or news) and not seeing underlying macro trends or fundamental changes in the market. Instead, investment decisions should be made based on a pre-defined strategy for a certain period of time and be reviewed periodically. Only by having a qualified perspective of portfolio performance can you avoid overreactions or passivity in your decisions.

It is in this context that the Asset Management solutions offered by Banco Carregosa may be a good solution, since you can delegate the management to a specialised team with extensive investment experience. We offer solutions for every type of asset and also according to your risk profile.
 
These are 5 of the main myths associated with investment which prevent many investors from making the best financial decisions. To choose the solution that best fits your case, contact the team of experts at Banco Carregosa.