What are investments and why is investing important?

The verb "to invest" conveys the notion that we put our expectations into something as a result of an effort. We can use this term on a daily basis and in various areas of our lives. We invest in relationships, at work, or even in hobbies or activities. However, in this article we talk about investing on a financial level.

Financial investments are easily distinguished by their nature, risk and conditions. Keep reading to explore some of the most well-known investment options:

Savings accounts

Savings are one of the most common ways of investing. The main goal is to put your money in an account and leave it there for a period of time. You can choose from several types of delivery: punctual, scheduled or one-off. This means you can open an account with money you have aside and top it up a few times a year or whenever you have some extra money.

But what's the difference between a savings account and a term deposit?
Both are deposits on which interest is paid and both have a capital guarantee, but while the savings account is more flexible and allows for top-ups, the term deposit is usually more strict. The biggest difference is in the penalties for early withdrawals. In the savings account, interest is calculated according to the period of time the money is in the account, and can be withdrawn at any time without penalties. In term deposits, early withdrawals are subject to heavy interest penalties.

Retirement plan

Retirement plans are the most popular way to save for retirement, also because you can deduct up to 20% of the amounts invested in the IRS, according to Article 21 of the Tax Benefits Status.
Retirement plans are long-term investments, and deliveries can vary both in amount and in regularity. You can redeem your plan according to some  conditions. However, if the minimum term has not elapsed, there may be a penalty for early redemption.

Financial insurances

Another way to invest your money is through financial insurances, which are medium to long-term products and offer numerous tax benefits. These advantages increase the longer the money remains invested: the longer the investment period, the lower the amount subject to taxation. Among the available financial insurances are capitalization insurances, which also include Retirement Plans. These investments are for the medium and long term, allowing personalized savings without the need for substantial initial investments. They offer a capital guarantee on the invested amount and, in the case of Retirement Plans, may provide additional tax benefits. Insurance linked to investment funds also allows for smaller investments and flexible savings. However, unlike capitalization insurances, they do not have a guaranteed minimum return, and the capital invested is not protected.

Certificates

Certificates are a complex investment option more suitable for individuals with prior investment experience. These financial instruments are exposed to the risks and fluctuations of financial markets, making them suitable for those comfortable with taking risks. Certificates are marketable securities issued by banks and traded in the stock market. They are well-suited for medium to long-term investments in shareholder's markets.

Funds

Investment funds are collective savings instruments, comprising contributions from several investors. The pooled capital is then managed by a professional fund manager, who invests it in various markets and financial assets, such as stocks, bonds, commodities, real estate, and more. Investors delegate the decision-making of asset allocation to these professional managers. Investment funds are divided into identical parts called units, which represent a proportional share of the overall fund's assets.

Stock Market

Investing directly in stocks is another option for individuals with prior knowledge of financial markets and an understanding of the typical fluctuations associated with this type of investment. Nowadays, thanks to the Internet, it has become much easier to track the stock market's evolution and stay updated in real-time about the happenings in major global markets, making this investment more accessible compared to a few decades ago.

We would like to remind you that before making any investments, it is crucial that you follow these guidelines:

Before venturing into the investment world, carefully assess your personal and family expenses. Above all, ensure your budget is well-organized. Regard all invested money as an additional asset with the potential to yield profits.