What must be known before investing in the markets? Investing is not something everyone can do. It is usually reserved for professionals. But if you want to do it yourself, there are some things you need to understand. There are too many financial products. Which to choose? How to choose them? How not to suffer too much from the costs, both obvious and not, of these tools? We would like to give you some (good) advice on how to proceed.
In the first instance, check if the product you intend to buy, whatever it is, is labeled as UCITS III. This is the European driving license. Which indicates that that tool meets a whole range of requirements. Primarily of saver protection and transparency. European standards, it should be remembered, are the best in the world. A product in which you intend to invest and with the UCITS III qualification protects you from scams. It also indicates that the SGR issuing it is sufficiently solid. And enhance your investments. At the same time, therefore, be wary of any product that is not UCITS III.
Second, focus on the investment strategy of the chosen product. And evaluate how risky it is. Because it is the only serious way to understand if that product is right for you or not. Do you invest in stocks, bonds, or a mix of both? Where does it invest geographically? In which currency does it operate? Does it use derivatives or not to protect its positions? Remember that equity products are riskier than bond products, basically. Not only. The prospectus of the product you are going to choose must also clearly state how risky it is. In particular, you need to understand how much you can lose if things go wrong. If you have any doubts, at the end of this analysis, give up.
What must be known before investing in the markets?
Another fundamental step is to know, and understand, how liquid the product you intend to buy is. In practice, how it can be bought and sold, and how often. Be very wary of products that can only be bought or sold once a week. They are illiquid. That is, difficult to liquidate if you need money quickly. The right products are instantly liquidable, such as stocks, bonds, funds, ETFs.
Having said all these things, another must not escape you. What history does the asset management company have, and how recognizable does it have, in whose product you intend to invest? Being a well-known brand and having a long credible history makes all the difference. Beware that there are also new houses managed very well and with more than reliable and serious professionals. The recommendation is to get well informed if the name is not known to you. Caution is never too much.
Finally, find out if the product is active or passive. In the sense of whether it is actively managed, like funds, or passive, like the vast majority of ETFs. Active products are more expensive than passives. This is because the costs remunerate the manager. Which should try to systematically beat its own reference index, ie the benchmark. Keep in mind a fact. On average, active managers do 2% worse per year than an identical passive product. A tiny minority of active managers, however, do much, much better than the average. Once again you need to have the right information.
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