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Fear does not generate profitability

12-06-2017 | Redacción CEU

He does not like taking risks, far less after the harsh blow received by some companies after the economic crash. The Spanish investor has a conservative profile and the development of our economy bears that weight. Spain figures in the latest reports as the worst investor among the five big european economies. Do we still have time to change this trend?

 

According to the financial analysts, Spanish families are changing the investment model. They have passed from investing in deposits to investing in low risk funds. It is the first time after the crisis that this trend changes. However, prudence is the one in charge. The economic decline has taken its toll on and it is difficult to bring back trust in investment.

In the study the Evolution of Savings of the Families carried out by Finanbest in collaboration with International Finance Analysts (AFI), Spain appears as the country with the worst investing among the five big european economies –competing with France, Italy, United Kingdom and Germany. Despite the trend change on savings, only 6% of families use the investment fund  it is the only one from the five countries that does not exceed the threshold of 10%–, standing at the same level as Romania.

The more conservative investors face a crossroads now. The interest rate of deposits has never been so low (as it is now). Analysts point out the remuneration received on an amount of 0.11%. A figure far removed from the average of the interest rate for deposits of 2012 that rose to 2.83%. It is clear that if the Spanish investor wants to get better returns, he must change.

This trend on the conservative investment is not only observed in our country, it is also perceived worldwide, although to a lesser degree. Despite the economical prospects get better and the predictions after Dutch and French elections are more positive in the Eurozone, investors keep clinging to investing in "safe-haven" like gold and the Germany bonds –seen as the safest financial products in the market–.  In the other hand, the consultant of JP Morgan points out that the perspective for Europe is 'positive' even though investors are showing themselves 'relatively prudent'.


The reckless investor

The analysis of Finanbest also gets the attention about the lack of financial advice of Spanish people when they investing. It seems that for them there is no middle ground; they have no tolerance for risk or they take all the risk without having the adequate information. The latter involves a significant danger, entails the possible destruction of financial assets and creates a bigger distrust in the market.

This profile of reckless investor is also observed in the business angel's world. In a talk of the newspaper Expansión with Luis Martín Cabiedes, one of the most recognized start up's investor of this country, expresses his worry about the lack of the educational training and rigour among some leading figures from the current economic outlook . He recognized: <<Before, when investing  in a start up, they would ask 'why doing it?’, now what they contemplate is 'why not?'. I think that there has been a relaxation in the process of due diligence and investment>>.

Why studying finance?

The last report of PISA is devastating in respect of the young people education in finance. One of every four young people lack of basic knowledge about this subject and has difficulty in interpreting an invoice. The school performance has fallen from 2012, when Spain got a score of 484, now has 469 –far away from the average of the countries that are members of the OCDE which is 489–. These data are disturbing if we take into account that the future of finance rest in the hands of this generation.

It is not an essential having financial knowledge to be an entrepreneur –although it is advisable–. It is, if he/she wants to become an investor –or at least to get counsel–. The most frequent mistake among the Spanish entrepreneurs is beginning to fly before time. The ignorance of financial tools lead to the money mismanagement. One of the options to gain the necessary educative background is studying an Executive Master Degree in Finance like the one at the Institute for Advanced Management. The successful investments do not appear by luck, before we have to prepare the ground. In the other side, the investor must follow a continuous training, because the financial world requires it. If he does not do it, he will be left behind.

Fear does not generate profitability

How to become a genius in Finance?

After the crisis, it is more difficult to achieve good returns in the short term. The only option to face this situation lies in changing the investment model. It is not about becoming a genius in Finance, it is about combating fear.

Why losing the fear on investing?

  1. There is a widespread certainty of that investing in a fixed term deposit does not mean a risk. But there is also a loss of money with this kind of investment. Factors like inflation are keys in this point. To find out more about this subject  you can read this article.
  2. Profitability is always linked to the risk that it is taken. If you do not endanger, you do not win. You must not take that premise to the extreme. If you invest, use your head to do it, study or seek advice.
  3. One of the essential ingredients of a good entrepreneur is his/her capability of innovating. He/She has to break with the stablished rules in many occasions and of course being prepared to take risks. You can access the video here of the masterclass of Jenifer L. Jhonson entitled Born to disrupt: the ingredients of becoming a social entrepreneur where  this issue is exposed. 
  4. Diversification is the best way to reduce the risk of investing. It is the more profitable option for saving. Investing in convenient products, in a particular time and never taking your eye off the goal.

All that one wants to achieve finds it outside his/her comfort zone. This maxim is not only a financial rule, it is a method that could be applied to everything. For combating fear we only have two engines: hope and need. The best alternative is choosing the first engine before it is too late.