How To Make Sound Investment Decisions


At this point in history, it is clear that, unfortunately, money does not grow on trees. On the contrary, getting hold of large sums of money can become complex. One of the ways to multiply money and achieve financial success is through investment; it is for this reason that making sound investment decisions should be one of the first necessary things to learn in life.

But What Is Financial Success?

So that financial success does not become a utopia. It is important to define what financial success means because, unlike what many think, it is not about being a millionaire.

Financial success is a series of continuous actions that balance the income received, lifestyle, and quality of life. Patience and consistency are keys to achieving financial success, as the road can seem long and difficult. However, one of the most relevant factors is the will because it becomes necessary to change the mentality of spending for that of investing.

That is why investing is one of the main aspects of personal finance, because it allows you to maintain purchasing power and even increase it in the long term. However, to invest, the first step is to save and plan.

Before The Investment – Develop a Financial Plan.

A goal without a plan is like a car without an engine. Having a strategy becomes even more important with financial goals since saving or investing can become frustrating if there is no clarity on how to achieve it.

A financial plan begins by identifying and quantifying the available financial resources and becomes a powerful tool with which it is possible to face expenses and allocate capital to save and invest. Financial plans can be carried out at a personal or business level and require constant evaluation to make the right decisions according to current information and the short, medium, and long-term goals.

What steps must be followed to develop a financial plan?

Current Status Review

The components of a financial plan are usually: income and expenses. Revenues are money inflows, while expenses are outputs. The expenses can be derived from everything required to generate the payment, or they can be associated with maintenance and fulfillment.

Extracting all the information about the panorama of monthly income and expenses is the first step in developing a financial plan. This makes it possible to identify the main sources of income and how they are being spent.

A very useful recommendation for this exercise is to classify the expenses. Some of the most used categories are:

  • Monthly fixed expenses: the payment of services, payment of debts or loans.
  • Occasional expenses: these are not made every month, but that do have a periodicity, for example, annual renewals of service or membership.
  • Unscheduled expenses: are those that arise from unforeseen events.
  • Ant expenses do not arise from any unforeseen event, nor are they periodic. They are usually impulsive or for pleasure, such as buying tickets for a concert sweet, among others.

Once all the information is collected and organized, it is possible to carry out actions that help reduce expenses.

Define An Economic Goal

The goal may be to save or invest. If the objective is to keep, it is important to specify what you want to save for because this will determine the goal you want to achieve at the monetary level.

If the objective is to invest, other purposes are also derived, such as how much profit you want to achieve and in what period to determine what the goal in money is.

Plan And Stick to The Plan

With the above information, the next step is to create a plan to reduce expenses to achieve the stated economic objective with current income. Here begins the most complex part, and that is to respect and stick to the plan. This will allow you to meet the objective and obtain greater satisfaction and peace of mind when investing.

Now that the plan is ready, what is the next step?

Identify The Investor Profile.

The popular saying goes: “each one, with each one.” This means that there are investment products according to the investor profile of each person. The investor’s profile determines the amount and type of risks that are willing to take, but other factors come into play to identify the investor’s profile. Some of the most relevant are:

  • Age and stage of life you are in
  • Income and savings capacity
  • financial responsibilities
  • financial knowledge
  • Investment type of interest
  • Desired profitability and expected time

With these characteristics, the types of investor profiles are defined. There are three that are usually the most used:

A Bold or Aggressive Investor

It is usually associated with young people because they are not afraid of risks and seek the highest possible return. They are generally single, between 30 and 40 years old, and economically solid; for this reason, they have enough solvency to invest in products that offer the highest profit.

They prefer investment portfolios in which they combine equity funds, short-term debt and long-term debt, shares of companies in the capital market or raw materials.

Moderate Investor

He is a balanced profile, he is willing to take risks when necessary, but he is cautious when making decisions. You want to maximize your profits while maintaining a balance between safety and profitability; For this reason, he is not afraid to take some losses, as long as it increases his chances of additional returns.

They are usually parents with stable income and moderate savings capacity. In general, they prefer a combination of debt instruments (bonds) and equity funds, the latter to a lesser extent.

Conservative Investor

This profile avoids risks at all costs. Their wealth grows much slower because they seek more stable earnings that do not put their savings at risk. It is common for this profile to be associated with retired people. However, anyone can be a conservative investor since people who do not have very high incomes also opt for this alternative.

Although they prefer to avoid risks, sometimes this type of investor can lose performance if inflation is not considered.

The types of products are usually those where they can know their profitability. That from the first moment. That is why they typically choose debt securities, term deposits, or savings accounts. Your portfolio is generally split between 70% equity in a debt fund and 30% equity in a hedge fund.

If you want to maximize capital or obtain extra income thanks to the investment, this type of investment is not the most recommended.

Also Read: FinTech – The Technological Revolution In The Financial Industry

How To Choose The Right Investment Instrument?

There are endless options to invest, which is positive because it is possible to find the investment that best suits the investor’s profile. On the other hand, it also adds complexity because, with so many options, the risk of making a wrong decision is greater.

For this reason, the first thing to make the right investment decisions is to find out about each of the available investment instruments. Identifying the investor’s profile can already give a clear idea about the type of instrument to choose; however, the main aspects that must be taken into account are:

  • The amount available to invest
  • Desired return
  • Degree of risk willing to assume
  • The term in which you want to obtain the profits.

The Capital Market Is a Wise Investment Decision.

Moving away from traditional instruments such as time deposits can be considered risky, or even complex or unknown. However, it is an option that allows you to obtain a much more attractive return and offers other benefits, such as choosing the type of investment you want since the investment alternatives are varied and with a guarantee of fairness, transparency, and equality. Of opportunities.

The capital market, also known as the stock market, is the place where company securities are traded, with different levels of risk, which depend on whether it is an investment of:

Fixed Rent

The conservative investor profile prefers this type of investment. The rent is fixed because it promises a reward that depends on the agreed interest and time. To make a fixed-income investment, debt securities are acquired.


Bold investors tend to choose this type of investment, and it does not promise a reward that can mean great risk and a great profit. This investment materializes through the acquisition of shares of a company, and the return is obtained by investing in shares of companies that promise amazing growth.


They are agreements to buy and sell financial assets on a specific date and price, and their value is derived from the cost of another purchase.

You can buy a security that is tied to the price of oil. If the cost of the asset goes up, so invests.

Other Considerations That Must Be Taken Into Account

In general, the capital market has financial specialists who can guide people to make sound investment decisions. However, it is important to be familiar with the main terms used to have greater clarity about the type of transactions that are being carried out and the implications of each one.

Investment Liquidity

It refers to the quality of the assets to be converted into cash without this affecting its value. Time is an important element for the liquidity factor of the investment, and therefore, there are investment instruments with different types of liquidity.

Payment of Intermediate Flows

Investment instruments pay intermediate flows, others at the end, and some may even be unknown.

It is important to consider when you want or need to receive cash flows when investing.

Market Access

Depending on the type of market, there are restrictions for transactions with financial instruments. In other words, it is important to understand what the possibilities are to buy or sell in the primary and secondary markets.

Value Units

Investment instruments may be expressed in different value units such as UF, IPC, US$, among others. Depending on the investment objective, some investors may prefer devices in dollars or other value units.

Investment Taxation

There are some financial instruments in which taxes may affect earnings, either because it is necessary to pay a tax or because the yield generates tax benefits.

Investing Is a Habit For Financial Success.

Investing and saving is a habit that requires a lot of discipline and will. However, its benefits translate into financial success and, therefore, peace of mind and economic stability.

Working with money and growing is also a way to ensure retirement and family well-being. Therefore, the invitation is to begin as soon as possible to change the mentality of spending to one of saving and investment.

This applies to both the personal and business spheres. There is a great business opportunity in the capital market and investment instruments; For this reason, everything seen above can be taken on a large scale to increase capital and equity.

Diversifying your investment, seeking advice and training from financial experts, as well as entering the capital market is the best way to start making the right investment decisions.

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