Equity can play an important role in a portfolio
Stocks or equity play a crucial role when a portfolio has to be built. Expectations of high returns coming from equity fit perfectly with the investor’s need to generate growth over time in their portfolios. Many studies have set around 9% (or even 10%) depending on the selected period (taking as a reference the US equities) the average return on equity. This profitability can’t be beaten by any other class of asset: for this reason generally portfolios will include a proportion of stocks and their weight will be subject to the investor’s tolerance to risk.
The average profitability of compound interest in the long term, as what was done whit the tree to explain the compound interest formula would give the next accumulated capital progression, if we started with a capital of 10,000 €:
10,000 € investment evolution based on a 9% annual profitability
If an investor is prepared to assume equity market’s volatility/risk, time will reward this investor with generous returns. But one must not forget there is an infallible rule for investments: usually more profitability means more risk.
There are other factors such as liquidity and accessibility that make it interesting for an investor to invest in stocks. Moreover, long term has proven that these factors can become a great protection against inflation.
Where to invest, Inbestme’s Scope
For our customized portfolios our main investment vehicle is direct investments in companies creating a portfolio pyramid based on investor’s profile. If our objective is to beat the market and persist in the long term, it is convenient to establish an appropriate approach in order to select companies that stand out in certain characteristics. Investors could have different approaches: some might value dividend yields, others might seek “value” and some others growth capacity. It all depends on their preferences as an investor and their personal situation (retired / active, taxation, etc…). Taking into account the investor’s profile, we combine these strategies in our portfolios.
Inbestme believes that the equity segment is essential to ensure a portfolios capacity to grow. It is important to make sure we won’t need the amount invested in the short-term because short equity volatility periods might involve having temporarily losses. Theoretically, more equity can be assumed in our portfolios if we intend to stay in the long-term approach.
Investors should acquire certain knowledge and establish an investment discipline before starting to invest in stocks. To have a minimum amount of at least 50,000 € is desirable so one can achieve an adequate diversification that will help us build an efficient portfolio. We recommend investing in a minimum of 30 stocks although in Inbestme we tend to diversify even more depending on the sections of the pyramid portfolio.
According to the portfolio’s objectives even though we have a high tolerance to risk, it might be advisable to combine fixed income sections to reduce our portfolios volatility. This is because in certain periods equity might yield less than fixed income.
For beginners that have moderate amounts a very interesting option is to invest in equities through ETFs. Our diversified portfolios combine different types of ETF assets from different regions to ensure a highly diversified but efficient exposure to equity together with the combination of other types of assets to guarantee an efficient approach to risk.
If you want to start making your first steps in the world of investments our diversified portfolios is an excellent way to begin.
Know your investment profile and start investing with us as soon as possible. Time is the best ally for disciplined investors.