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How equity investments work

Equities are a type of investment in which the recovery of the invested capital and the return on investment are not guaranteed, nor are they known in advance. In addition, it may happen that the return is negative, and may even lose the money invested. This is because the profitability of the variable income depends on different factors such as the evolution of the company in which it is invested, its economic situation, the behavior of the financial markets, etc. The stock markets and financial markets are sensitive to any change that is interpreted positively or negatively by investors and therefore are considered a thermometer for the economy.

A clear example of equities are the shares. When the investor buys shares acquires a series of rights among which is the collection of dividends. If the company obtains profits during the year, and whenever it decides at the general meeting, it may distribute such benefits among its shareholders, in the form of a dividend. In addition to this right, the shareholder acquires others such as the right to vote, the right to information …

In the very long term, equities are the only asset that manages to beat inflation. This occurs because in the long term there is a high correlation between variable income and economic growth of a country, although, in the short and medium term, it is possible to suffer volatilities that affect the behavior of the investment.

How can the small saver invest in equities?

When investing in the stock market, investors can not operate directly but must do so through financial intermediaries, who are responsible for executing the purchase and sale orders that their customers give them.

All the transactions carried out in the stock exchange are supervised by the National Securities Market Commission, which ensures transparency and the correct formation of prices, as well as the protection of investors.

Another fairly common way to access the equity market is through investment funds. The funds are savings instruments that bring together a large number of investors who invest their money while the management body is involved in investing in different assets such as stocks. In this way, the participants of an investment fund seek to make their investment profitable, at the same time seeking safety, liquidity and professional management by investing in the stock market.

Therefore, when investing in equities it is best to go with a capacity to the bank or a professional adviser can offer a customized solution based on your profile and your particular investment objectives.

At all times, the investor must be aware that, unlike fixed income, where the risk is lower and profitability is usually lower, the variable income may be subject to large market variations, which implies a greater risk. However, when it comes to needing to recover the investment, it will be faster to recover the investment in shares and participation, since the liquidity of these instruments is greater than the liquidity associated with fixed income instruments.

For an investor who starts in the world of equities, these are the steps to follow :

1. We must consider entering equities preferably in long periods (3 years or more).

2. Choose global equity assets, that is, not referenced to a single stock exchange, sector or investment style but to several. This allows us to diversify having a greater diversification by type of asset.

3. It is preferable to invest in variable income through periodic contributions (eg month to month) against the investment at specific moments. This allows us to gain diversification over time.

4. Relying on the help of a financial advisor to help us select which fund or equity funds suit us, as well as to follow our investment.