Knowing how to make your investment decisions is critical to achieving the desired results and achieving your financial goals. However, this is one of the biggest difficulties for investors, especially beginners.
In this scenario, it is common for this process to involve many doubts and insecurities. However, most of these difficulties are related to the lack of knowledge and assertiveness when making choices.
In this article, you will understand how to make informed investment decisions in order to reduce your risks and maximize your results. Read on and check it out!
What to do to make a good investment decision?
It is natural for novice investors to struggle to make good investment decisions. One of the reasons for this is that they do not know very well the alternatives available on the market or the criteria that should be evaluated.
For example, the investor often looks only at profitability and draws his conclusions. However, income is not the only factor that determines a good decision. It is just one of the elements that must be considered when investing.
Thus, there are some essential factors to get your choices right. So here’s what to do to make better decisions:
Know the investment alternatives
The first tip for those who want to make more informed investment decisions is to know the main alternatives that the financial market offers. In fixed income , for example, you can study about:
- Direct Treasury bonds;
- bank deposit certificate ( CDB );
- financial letter (LF);
- debentures ;
- among other options.
In variable income , it is important to understand the characteristics of some alternatives, such as:
- real estate funds (FIIs);
- investment funds (multimarket, stock, index funds, etc.);
- between others.
It is also necessary to understand that investments can serve different purposes. For example, there are alternatives that can serve to protect the portfolio, such as gold and foreign exchange funds.
As you learn about investments, it becomes easier to know which ones to use for each purpose. Soon, you will be able to identify the best alternative for your portfolio.
In this sense, we can think of an everyday example. Imagine that you walk into a pharmacy and order the best medicine they have in stock. There is no way for the pharmacist to indicate the medication without knowing what you are feeling, right?
After all, the indication of the best medicine will depend on your symptoms and your health problem. Investments work the same way. Knowing what each alternative is for will help you choose the most suitable one—according to your individual needs.
Understand the influence of behavioural aspects
Another important point is to understand that you will often be impacted by the behavioural and emotional aspects of your decision. The theme is increasingly debated and shows that even those choices that we think are rational may not be.
There is even a lot of literature on behavioural finance, demonstrating the relevance of this factor. For example, there are several tricks our brain uses that make choices not as smart as we think they are.
For this reason, it is important to be aware of and understand how behaviour affects financial choices. Only then will you be able to avoid them, seeking better decisions regarding your money.
Assess information carefully
In our daily lives, we are exposed to countless information about what happens in the financial market . There’s a lot of news about politics, international relations and the economy — which can affect investments.
However, much of this information is not, in fact, relevant for the long term. In practice, they can be considered noise, serving only to cause confusion. And they shouldn’t be considered.
That is why, many times, the herd effect occurs in the financial market. News about a particular company, for example, can cause many investors to sell their shares at the same time, causing the price of assets to fall.
Therefore, it is essential that investors are focused on their personal planning and that they do not react every day to the noise that happens in the economy. Keep in mind that the important thing is to focus on your long-term investment strategy.
How to protect yourself from making bad decisions?
Now that you know what to look for to make the best investment decision, it’s worth understanding how to protect yourself from bad choices. There is one question that I find interesting about the topic.
It is about making a decision by looking at the possibilities it brings. To understand better, imagine that you have made an investment in stocks. In this case, there are some possibilities: the asset could appreciate and you make a lot of money or it could depreciate.
This can result in short-term financial losses, for example. There is also the chance that it will remain stable, with no big losses or gains, over time. So it is necessary to understand and reflect on all the possibilities that can occur with that investment.
Now, it is worth knowing the alternatives that the financial market offers to choose the most suitable for your case. Know that, regardless of the amount you have available, there are several options to invest.
The importance of having a method to invest
As you have seen, considering that a given investment may not have the expected performance is important in order not to jeopardize your entire financial life . Therefore, visualizing the scenarios that may occur before making the contribution may be much more necessary than having a good result.
The reason is that you can perform well because of luck, for example. In this case, the investor may believe that his decision was right when, in fact, it was chance that made him have a good result.
However, this does not usually repeat itself indefinitely over the years and can bring losses in the future. Thus, decision making must be based on an effective method for analyzing investments.
In other words, the outcome must be positive because you understood how the alternatives work, controlled the risks well and made the contribution in a coherent way. And not because of luck and chance.
All the aspects I mentioned in this article help the investor to make conscious decisions. Thus, before investing, he will know the risks and opportunities that each investment offers — and will be able to make the best choice, according to his needs.