There are financial investments that, perhaps at another time, were smart decisions with your money. However, today they are not, and these can lead you to lose money.
If you want to know why, you should heed these tips and avoid these investments that can lose you money due to inflation and other current financial realities.
It is important that you understand that this is a situation that is occurring worldwide, that the figures are constantly changing and that you must be very attentive to how the economic situation evolves in the place where you are.
Investments to avoid if you do not want to lose money
Surely you are wondering, what is inflation, how does it affect your pocket or how does it impact your quality of life?
Well, although some understand the concept, it does not hurt to put it in simple words that everyone understands.
Inflation occurs when prices in your economy begin to increase substantially, and central banks are unable to control this increase.
Prices escalate and what you could previously buy for a certain amount, suddenly you will need more budget to be able to acquire it.
Therefore, before making any decision with your money, think very carefully about the current conditions of the economy and avoid the scenarios that we are going to share with you in this article.
It does not mean that you should not invest or make any strategic move with your money, what you should do is be attentive to looking for much more beneficial alternatives according to the current moment that the economy of your country of residence is going through.
Financial decisions to avoid so as not to lose money
If you are about to make a financial decision, you need to consider many factors, including the level of inflation, the rate of return that an investment offers you, the risk involved, and the terms of said investment.
Here are 5 examples of actions that you should avoid at all costs and look for better alternatives.
1. Have cash
This might seem like a sensible and safe strategy.
Having the money at home, in cash, stored without moving it in any way may give you a sense of tranquility because you would not be risking anything.
However, this decision could make you lose money, as prices are increasing and your money will be less and less compared to what you can buy with it.
Your consumption capacity with that money will be reduced without you being able to do anything about it, while you see the cost of living rise around you.
2. Have your money in a savings account
This decision is exactly the same as the first point, because your money remains static, without generating returns while inflation continues to impact the economy.
As time goes by, that money will lose value in some way because you will not be able to acquire with it the same as months ago.
In fact, the rates of return of a savings account are minimal and will not be enough to compensate for the inflation rates that the market is going through.
What is the password? Look for a return that is above the inflation figure. In this way you will have control of your economy and avoid losing money due to rising prices in your country.
3. Have low-return collective portfolios
Before explaining why it can be a bad investment, I will first explain what a collective portfolio consists of.
Basically it is a set of assets, grouped according to a particular characteristic, and which you can access by investing an amount of money. In general, it is a low amount that many investors agree to.
These are classified according to the investor’s risk level: low, medium and high.
Less risk, less investment. And this is the reason why having participations in low-risk collective portfolios could imply a loss of money, since their yield is not enough to cover inflation.
4. Public debt bonds
Normally, countries offer very low rates on the investment made in these bonds.
It is important that you understand how these work so that you know why they are not a good investment decision in times of inflation.
Public debt bonds are those issued by some entities of the public sector of any country or entities that have a participation of the Government greater than 51%.
With these, the National Governments obtain resources to finance their activities.
As we explained, the return on this investment is quite low, so you will not be able to cover the inflation rate and you will end up losing money unnecessarily.
5. Invest in assets you don’t understand
This last investment decision is important to keep in mind if you do not want to lose money.
It is much more important that you invest in your financial education than in any asset just because they promise you very attractive profits without you knowing exactly how they work.
Blindly investing either in real estate, in the stock market, in cryptocurrencies or any asset, is not investing, it is betting your money.
In fact, the best investor of all time, Warren Buffet, does not invest in any asset that he does not know well how it works, because he is certain that it will be a sure loss of money.
So before making any investment decision, spend time and resources to understand how it works. In this way you will be making conscious decisions, that follow an investment pattern, and that meet a specific objective.
Do not invest without understanding how inflation impacts:
Finally, we want to invite you to get to know our Rich Mind digital book, so that you can apply the 50 most effective tips to build your wealth and get closer to your financial freedom regardless of the current situation.
Likewise, you must always be attentive and keep up to date with the economic evolution that not only your country of residence is going through, but also the rest of the world.
Investments are not only local and this can impact any market.
Continue reading: 10 Tips to protect your money from inflation