What are the benefits of investing in the Financial Market?

You have certainly asked this question.

What is the financial market for? Why invest?

For some, the financial market is seen almost as a bogeyman, very difficult to understand and only available to some. For others, the market serves to manage savings, seek financing, speculate, manage risk and even as activism, a sign of power and status.

It is common to hear opinions of total discredit in the financial system or of sophistication and self-praise for belonging to this elite. A game of casino, luck or chance, or an innovation and growth mechanism based on a thoughtful and rigorous strategy.

The goodness of the financial system is at its origin and its foundations.

 

From a practical point of view, the financial market is the place where the transfer of savings to entities seeking financing takes place.

 

Thus, as investors, we provide savings to the financial system with the objective of making our assets grow and thus becoming better prepared for the future and for the life we want.

 

Então, quais os benefícios de investir no mercado financeiro?

 

• Savings and financial security

The financial market is a regulated, transparent and efficient place to store and manage our savings with the objective of consuming in the future.

In addition to investing in real assets, such as real estate or art, investing in financial assets allows you to find the best portfolio for our unique characteristics.

But as with any investment, the results do not appear without rigor, without a plan and without cost.

When we plan to buy a property to invest and earn income from it, we do not think about selling it immediately and we know the costs of the entire process. The same happens with financial investments. We must be prudent, patient and intelligent in the decision process.

The risk, of course, will always be there. I highlight two of these risks: the risk of longevity and the risk of premature death.

On the one hand, we are afraid of running out of money if we live too long. On the other hand, we are afraid of dying too early without enjoying the accumulated savings and even of not meeting our goals and putting at risk those who depend on us.

This balance is possible through the various financial instruments available.

 

• Heritage diversification

Individual or family assets are often concentrated in a real estate asset, which is our house, or our business, when we own a company.

To understand the weight that this investment has in the total equity, it is enough to have a reference value of the property or the business, join the financial investments and bank accounts and deduct all existing credit. You will certainly be surprised to find that a substantial part of the assets is allocated to one or two assets.

There are those who disagree with considering the house or our own business as an investment. However, we should not discard this classification for the simple reason that we do not know the future.

Having part of the savings in financial investments is, therefore, a way of diversifying risk and optimizing assets, taking into account the objectives and preferences of each one.

The great diversity of securities and instruments listed on the stock exchange provides an enormous benefit for the investor to reduce the specific risk of each asset. This benefit is even more concrete and facilitated through collective investment instruments (PPR, insurance, investment funds).

It is also a source of immediate liquidity, unlike the property or its own business.

In terms of liquidity, it is also important to highlight the cost. Not only the price discovery cost as well as the transaction cost. This is usually much less than the cost of an alternative instrument such as real estate, art or gold. I emphasize the latter because there is still a cost to guard and protect these investments.

Therefore, knowing that one does not replace the other, we can say with certainty that both complement each other.

 

• Achieve specific goals

The most common goal is retirement, but we can define other goals such as education, buying or investing in a business, transferring assets to the next generation, donations, leisure and even buying a car or a new house.

We can define a strategy for each of these objectives and obtain in the market the necessary instruments to implement this strategy.

 

• Maintaining the level of life in the future

It is perhaps one of the most overlooked benefits. The truth is that when we analyze the returns on our investments we rarely take the inflation effect into account. Instead of analyzing the nominal return, we must also analyze the real return.

Beating inflation is one of the benefits of investing in the financial market. Ensuring that our savings are protected against the loss of purchasing power in the long term should be one of our goals.

 

• Participate in economic development and growth

There are several possibilities to participate in an economic or social activity. One of them is through the financial market. Investing in a stock or bond, making a time deposit or buying public debt.

The financial market can also be an efficient vehicle for us to use our financial investments as collateral to obtain financing for, for example, creating our own company.

If we have a financial wealth diversified by shares, bonds or collective investment instruments, it is relatively easy to obtain financing by giving these instruments as collateral.

There is also a scenario to monetize relatively illiquid and very long-term investments. See the case of being shareholders of a company not listed on a stock exchange. For this purpose, the financial market offers several solutions without obliging the investor to sell. We can even manage their fiscal impact. We can use simple instruments such as a credit (debt issue) or more sophisticated instruments such as options, swaps or forwards.

 

• Flexibility

Financial instruments are, in general, traded in units that are held by multiple investors, with different levels of wealth and knowledge and different objectives and preferences.

 

• Tax efficiency

In fiscal terms, it may be more advantageous to invest savings through financial instruments than in an own business or property.

 

• Confidentiality

Each investor can invest in the instruments and solutions that he/she wants in a discreet and safe way. The intangible nature of this type of investment confers this confidentiality.

 

Conclusão

This is a not very exhaustive analysis of the benefits that can be attributed to investment in financial markets.

The major themes of the moment, such as the circular economy, inequality, energy transition, technology, sustainability, ethics, are themes that can be represented in a diversified portfolio and oriented towards the objectives of risk and return, preferences and constraints of every investor.

 

Through the financial markets, we can participate in the constant process of innovation and technological development, in social projects, in public works, in disruptive companies and even in space missions.

 

It is in the search for solutions that we must prioritize. And the financial markets allow this solution.

 

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