What are investments?

Investment is the purchase of a financial product with the aim of making a profit in the future. This return is possible on account of the interest paid by the issuing institutions of the credit securities or the appreciation of the papers.

These products can be, for example, fixed income securities issued by banks, companies and the government itself as a form of capitalization. In other words, the money paid by investors finances the issuers’ activities, such as works or projects. In exchange for this “loan”, institutions pay interest to investors.

It is also possible to invest in securities owned by publicly traded companies, the so-called shares . In this case, profit can come from the organization’s dividends or from the sale of papers after a period of appreciation, for example. But let’s start with the simplest, which are fixed income securities.

Before investing, some information is already agreed between the issuer and the investor, such as: redemption period, liquidity , income tax rate to be paid and administration fee. It is also agreed what will be the reference rate for the paper or the percentage of interest to be paid in the future. A very common reference rate is the CDI , an Interbank Deposit Certificate, which is always close to the economy’s basic interest rate , the Selic .

As for variable income investments , such as stocks on the stock exchange , it is difficult to predict what the value of the papers will be over the years. Still, there are so-called fundamental and theoretical analyzes that make a good prediction of what is to come in terms of income.

Why invest?

All in all, the answer to this question seems simple: make more money. But making more money for what?

Investing requires study and discipline, so it is necessary to have clear objectives when making this commitment. Without that motivation, chances are you’ll end up giving up and using the money for other purposes.

There are several reasons to start investing, and they vary from person to person. It can be buying a house, a car, taking a dream trip, taking a very important course or even starting your own business. Whatever your goal is, it will be critical in defining the investments you will choose.

Even if you don’t have a specific goal, remember that investing is the best way to plan for your future . After all, when it’s time to retire, Social Security’s money will hardly be enough to maintain your standard of living. At this point, having a reserve that generates good income will make all the difference.

When to start investing?

The ideal is to start investing as soon as possible because the longer your money is invested, the more it will pay off. However, before kicking off, it is essential to fulfilling two prerequisites.

The first one is to pay off your debts. The possibility of making money multiply is exciting, but first you need to organize your budget, without skipping steps.

The interest on debt is generally higher than on investment, especially when it comes to credit card and overdraft facilities. So get rid of them as soon as possible, even if it’s going to take a while.

With the debts paid comes the second prerequisite: building an emergency reserve . As the name implies, this reserve consists of an amount that you must have saved for unforeseen events, such as buying medicine, repairing the car, in case of unemployment or inability to work.

Experts indicate that the emergency reserve covers 6 to 12 months of a person’s basic expenses 

Therefore, the ideal amount varies according to each person’s standard of living : for someone who spends R$4,000 per month, the amount must be at least R$24 thousand; for those who have costs of R$ 10 thousand per month, the reserve must have at least R$ 60 thousand.

The emergency reserve must be placed in low-risk investments that can be redeemed at any time, such as Tesouro Direto Selic and some types of CDBs (more about them below).

However, remember: the focus of this reserve is not to obtain high returns, but to ensure your financial security. After paying off the debts and setting up your reserve, then it will be time to start investing to build equity .

 

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