The health of the financial market is conditioned by a multitude of factors that generate continuous fluctuations in the values of the securities, in the rates … The Ibex 35, the Euribor or the inflation rates, are some indicators that define, among other things, the decisions of investment of the savers.
In this post, we will explain what are the two factors that influence investment decision making and how they are altered by external factors, over which there is no personal control, which directly or indirectly affects investment products. It is important to know that all this will affect the stability of the financial system to which we all belong or as bidders or claimants of funds.
Risk and profitability as personal factors
Before making any investment decision, as an investor, you must prescribe a threshold of risk and profitability that you are willing to face. In addition to being necessary to know how the different stock markets move so that, when investing, be able to consciously decide where, why and at what price.
In all stock markets where financial assets are exchanged, they carry a certain level of risk in exchange for a certain return, that is: the most attractive returns are paid at the risk price, depending on the risk you are willing to assume, your profitability will vary.
According to the CNMV’s Information Guide, it defines risk and profitability in investment decisions, as follows:
- ” Financial risk is the set of factors that can determine that the investment provides a return different from the expected, above or below. Risk means uncertainty and, financially speaking, it is considered that incorporates the same risk obtain a 20% above or below the expected profitability. Logically, the risk that worries the investor is the second one, that is to say, the probability that the profitability is inferior to the initially predicted one “.
- “The profitability of the investment is, in its simplest form, the quotient between the net returns of the investment and the amount of money invested, expressed as a percentage”.
These two factors will determine the different investor profiles so, depending on what you expect from your investment and your aversion to risk, you will opt for one product or another.
In this report, the 5 influential factors are summarized:
Fixed-income securities market
In the fixed income market, products are, in many cases, the perfect choice for investors. They are negotiable securities issued by companies and public institutions. One of its main attributes is the security they present.
The most demanded product are bank deposits although there are others such as public debt (treasury bills and government bonds …) or private debt (issued by companies), preferred shares …
It is true that any investor who is not able to assume a high risk opts for this type of products although their returns are not particularly high.
But what external factors can affect the profitability of these products?
Evolution of the currency
If the value of the currency at the time of the investment and at the time of return is different, the profitability of the operation will vary. If the value of the currency is increased, the profitability also if, on the contrary, the currency depreciates, the profitability of the investment will also do so.
The interest rates will also mark the return on the investment, that is, if the rates rise, it is possible that the investor loses money with respect to the profitability that he hoped to obtain. If, on the other hand, the rates fall, the expected return will be higher.
Equity market: The Stock Exchange
The Stock Exchange is a market in which the majority of Spanish investors invest their savings. It is very volatile and suffers constant oscillations where the variables risk and profitability are the two most important characters that will determine all the operations of the savers in making investment decisions.
It is a market with attractive returns paid at a risk price, that is, depending on the risk you are willing to assume, your profitability will vary.
The main financial asset that is demanded or offered on the Stock Exchange are the shares or securities of the companies listed on it. They are assets with very variable values and depend on uncontrollable factors that can affect favorably or unfavorably.
Currently, in Spain, there are many factors that are moving the prices of the titles.
So, what external factors exist that vary the value of this investment product?
The changes produced in the business fabric can affect positively or negatively in this stock market. The price of shares quoted on the Stock Exchange may be altered upwards or downwards as follows:
- Opting for an internal development that increases the added value of the company by generating innovative products, approval of beneficial projects or making acquisition decisions, a fusion of other companies that are positive, will cause the values of the actions, in these cases, to increase.
- If, on the contrary, there is fraud or negligence on the part of the company, there are political or social factors that adversely affect them … Their shareholding values or their quotation on the Stock Exchange will decrease making that company less attractive.
Inflation affects the Stock Exchange and the value of the shares directly.
If we understand inflation as the generalized increase in prices within an economy that will cause a reduction in the purchasing power of investors in addition to lowering the value of money, listed companies will be favored in moderate inflationary periods (0% a 2%). The reason is simple, the slight rise in prices moves easily to consumers.
On the other hand, if inflation is very high, prices will not be able to compensate for the large rise in prices and consumers will accept these increases more difficulty. The same happens in deflationary periods where the value of money rises and represses, therefore, consumption and investment.
Industry, as a rule, is regulated by the government. It is true, that some sectors are more intervened than others because of it, a bad decision can cause the investment in that company to be seriously damaged.
In Spain, we are currently going through a period in which, the case of Catalan secessionism, is causing the equity market oscillate sharply creating distrust among investors.
A part of all these factors, there are many of them that can occur suddenly and can cause positive or negative effects. Whenever it is invested, one must be well informed of the economic, political and social context of the country, in addition to knowing the conditions on which the investment product that is ultimately chosen is based.
Are there alternatives that are not affected by these factors?
The answer is yes. Keep reading…
Investments in loans guaranteed by SGR
At MytripleA we have the perfect alternative for all those investors who want to escape the risks arising from those external factors that mark the profitability of their investment.
The investments in loans https://www.paydaychampion.com/ guaranteed by SGR are a type of investment insured by Reciprocal Guarantee Societies that has the backing of CERSA and the FEI. In addition, they show an attractive 2% annual return + Euribor. A priori, it seems that profitability can be reduced by this index but the reality is that the Euribor only plays in favor of the investor. The Euribor only adds up. If the value is negative, the base 2% does not subtract it, since it becomes a zero value. Only if it is positive, the return on your investment guaranteed by SGR increases.
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