Geographic diversification also helps spread risk. Last but not least, all investors must set a level of risk with which they feel comfortable and in line with their investment objectives.

Don’t follow the crowd

As we have seen exponentially in 2019, after the bankruptcy of the American investment bank Lehman Brothers, unexpected or unfavorable news can have significant consequences on the performance of the equity markets. Indeed, many defensive companies, generating significant cash flow and able to create value in various market conditions, have often suffered from the same negative sentiment that has driven down the stock prices of companies more sensitive to economic conditions and of poorer quality.

Invest in what you understand

While a well-constructed portfolio can be the source of strong performance for an investor, the reverse is also true. It is easy to incur irrecoverable losses by placing money in an asset that does not behave as expected. It is important for all savers to take the time to reflect in order to be sure that they fully understand what they want to hold. When you go for the key investment terms   then this is important.

Avoid overconfidence

The past does not in any way prejudge how an investment might develop in the future and investors should try to assess the potential risks associated with a specific investment with its possible gains.

The value of investments may fluctuate and thus decrease or increase the net asset value of funds. You may therefore not recover your original investment. Please note that past performance is no guarantee of future performance. Be aware that the value of your investment may go down as well as up due to fluctuations in exchange rates. The opinions expressed here do not constitute a recommendation, advice or forecast on the markets. We cannot give you financial advice. If you are unsure of what constitutes an appropriate investment, please speak to your financial advisor.

Liquidity risk

The investor has purchased the company’s securities; he must be able to resell them in the long term (at 5 years on average). The risk arises from the fact that funds managed by investors have limited lifespans (generally 10 years), and that investors are required to reimburse their subscribers with a capital gain, at the maturity of the fund. They must be able to sell their securities by the fund’s maturity at the latest, and under good conditions.

When the company does not present an economic situation attractive enough to find buyers, the investor is said to be “stuck” to the company, because he cannot sell his securities and therefore cannot make his investment “liquid”. 

Participation

There are many criteria for an investor’s decision, but they all aim to ensure that the risks taken are measured and fit into their overall investment strategy.