Five Basic Concepts Every Investor Needs To Know

You, interested in investing, must have already noticed that the market has an “own” language. There are some concepts that you need to know to move more safely in this environment and also investment website for more information. Get to know the main ones:

Liquidity

Represents the level of ease (or difficulty) in redeeming or transferring an investment. Investments with low liquidity are traded by fewer investors or in longer terms. They may be less attractive because of this. This is usually the case with debentures or other more sophisticated fixed-income options. On the other hand, highly liquid investments have a high volume of operations. The shares of Vale or Petrobras, for example, are considered highly liquid. This is a point in their favor.

Risk

In investments, the risk is not very different from the concept of risk in general. It represents the chance that something will come out different than expected or at odds with the interests of those involved. In practice, it is the possibility that something has an impact on the results of financial investments.

Return

It is how much the investor earns with a financial investment. When expressed as a percentage, it is called profitability. Thus, a return of 10% per year is the same as a return equivalent to 10% of the amount initially applied, obtained over a year.

Diversification

A well-known investment strategy in the market is to split the resources between different products. This is a practice aimed at reducing risk – but how? Different types of investments tend to fluctuate differently. When one is declining, others can register gains, for example. This is because events that benefit one sector of the economy, for example, can be bad for another.

Think about the exchange. The strong dollar is positive for exporters and could be a stimulus for the shares of these companies to rise. On the other hand, companies that depend on imported inputs tend to suffer from the same situation. An investor who had bet all of his chips on these companies could have lost. If you had already divided the portfolio between the two types of businesses, it would be more protected.

Relationship Between Risk And Return

Each investment has a different return expectation. And what is the reason for this? Among other factors, the relationship between risk and return counts. Generally speaking, the greater the risk of an investment, the greater its expected return. Likewise, investments with a lower risk tend to have a lower expected return. Compare the stock market with fixed-income investments, for example. It is possible to obtain a higher return with shares, but the risk of this alternative is also greater than that of fixed-income investments.

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