Often a low level of financial education is what contributes to the perception that investing is some sort of extreme sport to stay away from. In doing so, the uninitiated often find themselves bewildered about financial planning choices. Although risk-free investing is a utopian concept in itself (all the more so now that returns on the safest instruments have disappeared), there are several ways to invest consciously. Let’s try to understand how and where to invest in the stock market without risk.
What is Risk and How It Can Be Managed
One of the most recurring concepts pertaining to the subject of investments concerns risk. Risk can be defined as the probability that the return associated with the investment may have negative fluctuations compared to expectations. Understanding the concept of risk is not only informative, but it is important to avoid emotionalism playing a negative role with respect to your investment objectives.
Depending on the asset chosen or the time horizon set, the risk must be calibrated differently. For example, investing in the stock market requires greater exposure to risk, but also greater potential for gain. In the bond markets, the exact opposite applies.
Predicting risk, however, remains very complicated and depends on numerous external factors, such as the outbreak of an unexpected pandemic or certain geopolitical scenarios. Talking about risk-free investments is therefore utopian and conceptually incorrect. The only way to lower the risks of an investment is through the construction of a diversified portfolio adapted to the investor’s investment profile.
The financial markets offer the possibility of trading in different types of assets. Below we will analyze three instruments that can be effective in achieving positive performance in the medium to long term: stocks, ETFs and stock market indices. Let’s see them in detail
Shares: for a dynamic long-term portfolio
Shares are the instrument historically best known by investors, at least on paper. Shares can be traded in various financial markets. It is a useful tool both to generate profits in the short term and to achieve them in the long term. In the first case, the investment is more susceptible to external factors and therefore potentially more risky. History teaches us that stocks are the ideal instrument for patient investors. To paraphrase a famous Warren Buffett statement: if you’re not going to hold a stock for 10 years, don’t hold it for even 5 minutes.
ETFs: diversify at low cost
One of the best solutions for investing in financial markets while lowering risks is to subscribe to index funds that aim to replicate a benchmark. An example of this type is represented by ETFs, an acronym that stands for Exchange Traded Fund. ETFs are funds that have very low management costs and can be traded on exchanges (just like stocks). The fact that each ETF includes a large number of securities, aimed at replicating the performance of a given index, ensures investors adequate diversification and less volatility than investing in individual stocks.
Stock indices: investing in entire baskets of securities
Stock market indices are another popular tool for investors with long-term investment goals. Indices are nothing more than baskets of homogeneous stocks whose performance is determined by the weighted sum of the individual stocks. The most widely used stock market indices are the NASDAQ and the S&P 500, while in Italy we have the FTSE Mib.
The Best Platforms for Investing in the Stock Market
To invest in the stock market the best way is to turn to online trading platforms. The brokers we are going to look at are two of the most popular operators among investors around the world.
The first is eToro, a trading platform that includes a wide range of assets and various innovative features. The main feature of eToro is to allow all types of traders (from newbies to veterans) to operate and, above all, to interact with each other (thanks to CopyTrading and Social Trading).
Another very famous broker is XTB, one of the biggest brands in the online trading industry. The same applies to this platform as to eToro, as it is an operator that meets all the requirements of security and professionalism. The asset offering includes all the most popular instruments: stocks, currencies, ETFs, cryptocurrencies, commodities and indices.
How to Invest in the Stock Market Without Risks: A Practical Guide
Before starting to trade with an online trading platform, it is necessary to open an account and then proceed to register on the official website. The process is similar for almost all platforms: you must enter your personal data, confirm the account at the link sent to your email and then you are ready to trade.
The first step is to deposit your capital in the account. The minimum budget varies depending on the broker used (for eToro it is 50 euros) and the deposit is made by credit card, bank transfer or PayPal. At this point all that remains is to become familiar with the platform and select the assets on which you intend to invest.
Final Considerations: Is it worth investing in the stock market?
As we have repeatedly analyzed, investing in the stock market without risk is an overly simplistic expression. The risk is present in every type of investment and the stock exchange is no exception. In order to consciously manage one’s own money, it is advisable to know all the potential advantages and disadvantages that reside in investments.
Investing in the financial markets can help you to accumulate over time an important sum to fulfill your desires: buy the house of your dreams, take a trip or pay the studies of your children. Of course, when you employ a capital, it is good to know that you can risk to see it fluctuate in an important way.
The financial markets are going through a very particular period, so it is important to know how to adapt to the context in order to take advantage of all the opportunities. On the one hand we have fixed-income securities, which are safe instruments par excellence, but which today generate almost zero interest. On the other hand we have riskier instruments, such as equities, which potentially offer high returns, but which require investors to have greater exposure to risk.
Investing in the stock market is the best choice for patient savers, capable of managing their emotions and who have their financial objectives firmly in mind.