Profitable investments: everything you need to know

When I decided that I wanted to grow my capital by investing a part of it, I realized that there really are many profitable investments. But I also discovered that not all of them are right for me. And most importantly, not all are equally safe.

So I spent a lot of time looking at the different possibilities before making a decision. From that exhaustive research came great insights that have finally allowed me to make profitable and safe investments.

Stay and read, because I am going to reveal essential data to obtain a good return on your savings.

 

What is profitability?

Before we delve into the different alternatives out there, I want to make sure we share the meaning of some basic concepts. And the first of them is profitability.

Profitability is the return that money generates after a certain time. In other words, they are the results obtained after an investment.

Ideally, the return should be positive, which would mean that you have made a profit. But it's not always like this. Profitability can also be nil or even negative.

How to calculate profitability?

This is a fairly simple calculation. It consists of calculating the difference between the final capital and the initial capital, and dividing that figure by the initial capital. Since profitability is usually expressed as a percentage, the last step is to multiply that value by 100.

I show you with an example.

Imagine that last year you invested €10,000 and 12 months later you closed the operation with €10,900. To calculate profitability you would do the following:

(10,900 – 10,000) / 10,000 x 100 = 9%

That means that your investment generated, after one year, a 9% return.

How to know if an investment will be profitable?

Unfortunately, it is impossible to know exactly what return we can expect on each investment. Unless you invest in fixed income products such as bonds or treasury bills. But those have such low profitability that it is practically nil.

In general, if there is something that characterizes an investment, it is the uncertainty to which one is exposed. I don't want to discourage you with this. I just want you to be aware that investing is not 100% safe.

Luckily, knowledge will give you the possibility to make good decisions and choose, for the most part, profitable and safe investments.

Factors associated with profitability

As you can see, profitability is not something fixed, but depends on many factors. Knowing them and learning to manage them will be essential to properly choose the investments that interest you the most according to your profile.

Let's analyze them.

The term of your investments

The passage of time is very important when we talk about investments, and most experts agree that the way to obtain profitable investments is to focus on the long term.

In fact, El Confidencial collects some quotes from the most successful investors, who agree on the following idea: the short term can make you lose money, but you need the long term to win .

And it is very difficult to invest and get rich in a short time. On the other hand, anyone who invests prudently and with basic knowledge can obtain good returns in the long term.

Therefore, first of all, you should ask yourself the following: how long can I keep my money invested without needing it?

If you are going to need that money in a few years, then you will have to look for investments that can generate short-term benefits and put aside others, such as the stock market, since they may not allow you to obtain a good return in such a short time.

And that, why does it happen? Because of the volatility of the market, which is the next factor I want to talk to you about.

Time is a good ally for your investments to be profitable.

market volatility

Volatility is the fluctuations in the value of an asset over time.

There are some investments that tend to be more volatile and others that are more constant.

Many times, assets with high volatility can offer high returns. But as you might guess, it's also much riskier, because its value could drop dramatically at any time.

On the other hand, choosing investments that suffer less volatility will give you more security, but in turn, a somewhat lower return.

What would you choose? Before I answer, let me talk about risk.

The risk in your investments

Risk is the probability that an investment will return less than you expected.

Obviously, it is a fact that no one can predict. But in general it is usually true that, the higher the profitability, the higher the risk of the investment. That is why you have to be very prudent when choosing an investment.

When you're starting out, it's easy to be tempted by higher-return investments. But no one is going to give you money. If they promise you a high return, it is in exchange for the high risk that you are assuming.

Now yes, let's go back to the question from before: Do you want to assume more risk in exchange for greater profitability? Or do you prefer more security, even if that means obtaining a lower return?

My recommendation, if you are starting, is that you opt for the second option. The argument is simple: getting a low return is much better than losing money.

Even if you end up getting a good return on that risky investment, you've probably been struggling for your money in the meantime. And that brings me to the last factor I want to talk about.

investor emotions

When investing, it is important to keep as cool a head as possible and rely on objective and verifiable data. Stay away from intuitions, rumors and, above all, try not to let emotions take over you.

It is normal to feel some fear when we invest our savings. I'm sorry too, although I think it's more prudence than fear.

But I know people who, by panicking, have lost much of their savings. The same can happen with emotions of euphoria or excessive confidence. Emotions will never play in your favor in an investment.

Control what is happening with your money, but without obsessing or acting impulsively.

Tips for finding profitable and safe investments

Invest the money you won't need

It seems logical, but invest only what you have left over so as not to put your financial stability at risk. And not because you are going to lose that money, but because you will not have it available for months -but years-.

Find out well before choosing your profitable investments

Spend all the time you need to study the options you have and assess their advantages and disadvantages. Don't be in a hurry, a decision like this requires calm.

Define your investor profile and your investment strategy

Each inverter has different characteristics. Knowing yours will help you rule out some investments and opt for others that suit your goals, your capital, your risk tolerance and your current knowledge.

Depending on this, you can adopt different investment strategies , ranging from the most conservative to the most aggressive.

If you have a clear strategy it will be much easier for you to remain calm in the face of volatility and finally obtain your benefits. Similarly, if your strategy has a stop loss, you will know when the time has come to take action to protect your capital.

Diversify your investments

Many times we have heard the phrase "don't put all your eggs in one basket" . And when it comes to investing, this phrase makes a lot of sense.

Having several different investments allows you to spread the risk among all of them. So that if one is less profitable than expected, it can be compensated with the others. It is the way to balance your portfolio.

Following this system, you could distribute a percentage of your capital in fixed income and another percentage in variable income. And within these two categories, also diversify among various assets, as long as they are aligned with your objectives and your risk profile.

Profitable investments: some ideas that you can value

We come to the most interesting part. What can you invest in to obtain a good return and in as safe a way as possible?

There are several possibilities, but the ones that I will share with you below usually give good results if they are managed with prudence and knowledge.

1. Invest in the stock market

Surely we are facing the most popular type of investment. And it makes sense, because despite the difficulties involved, when you understand how it works and learn to read the market, you are quite likely to get a good return, especially in long-term investments.

These types of operations are carried out through a broker and you can start even with a small capital.

You can invest in shares, although the most common is to invest in derivative products such as CFDs, futures or options, although the latter are not so recommended for beginners because they are more difficult to predict.

What do you think about investing in the stock market ? If you are interested but you see it as too complicated, perhaps the following option will be more attractive to you.

Watching how the markets are doing.

2. Investment funds

Investment funds are collective investment institutions. These institutions collect the money from the participants that make it up and invest it jointly, based on the studies and analysis of the management company.

The good thing about doing it this way is that it does not require as much time or learning as if you buy the shares on your own, in addition to the fact that in general you get a higher return.

Another advantage is that investment funds buy sets of shares, so that with a single purchase you are acquiring shares of many different companies, thus complying with the principle of diversification.

And if you still want something simpler for yourself, automated managers or Robo Advisors will surely end up seducing you. They are services that manage your investment portfolio automatically, following the strategy of expert investors. In this way, based on your profile, they select the best investments and keep them optimized.

Is there an easier way to invest?

3. Real Estate Investment

Another very popular investment is investing in real estate . Undoubtedly, an option to take into account if you have enough capital: buy apartments to rent or resell them.

And if you don't have that much money? You can also invest in real estate. Today very accessible and interesting formulas have emerged.

I am talking about SOCIMIs, companies that jointly invest in real estate, either to rent them or to resell them later. Joining one of these companies allows you to participate in large investments and obtain the profitability of these operations without hardly taking care of anything.

Something similar occurs with real estate investment funds, in which, through a professional team of analysts, you buy shares of real estate assets. This option is even better if you are not sure which SOCIMI to associate with.

4. Crowdlending

A rather novel investment proposal is crowdlending. It consists of financing the creation or growth of the companies you choose, to finally recover the investment together with the agreed interest.

To do so, there are different digital platforms that put individuals in contact with companies.

Although it is generally a profitable investment, it also has its risks, because the company could not end up paying the interest or even disappear with your money. It is not usual, but if you bet on this type of investment, choose only crowdlending platforms that are well consolidated and have good regulation.

5. Creating a business

Yes, this last option may seem a bit far from the topic at hand, but starting a business is a fantastic way to invest your capital.

To carry it out you will need to know a profession or sector well, or gather a team of professionals who deal with different areas. Or you could even consider the possibility of being a franchisee of a business that has already demonstrated its profitability.

In any case, if you set up a good business, you will be facing the best investment you could have made.

What investment seems more suitable for you?

As you can see, it is not easy to choose what to invest your money in , but surely you have already found an idea that interests you or that meets your needs. If so, I will be delighted to read in the comments which are your favorite profitable and safe investments.

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