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Invest well in the long term, also in pensions


Investing well for the long term requires you to pay attention to three very simple decisions and then apply a great deal of patience. Almost every academic who has studied investing will tell you that you are more likely to maximize your risk without adjustment if you minimize your taxation. Summarizing, diversify your portfolio and minimize taxes.

Low Commissions. The biggest drag on the performance of an investment portfolio continues to be the high commissions that also appear hidden, known as implicit commissions. The problem with funds in Spain is that the investor considers that the investment in funds is free, that is, that the funds do not have commissions since these are not paid explicitly but are included in the net asset value. A management fee between 1% or 2% may not seem like much, but in a market that is producing 6% you could be giving up more than a third of your total profits. And if the market is giving negative returns, the management cost is added to the losses in such a way that if the market loses 1% your fund with a 2% commission will lead to a total loss of 3%

Diversification and Rebalancing. Studies have shown time and again that a diversified portfolio offers higher risk-adjusted returns than a portfolio that consists only of stocks or with few asset classes. It may be counterintuitive, but a diversified portfolio works best when it automatically rebalances itself, which in technical parlance is called rebalancing the portfolio. Knowledge and advice in a wide variety of asset classes and markets will help to optimally manage a diversified portfolio.

Fiscal Efficiency. Benjamin Franklin cited death and taxes as the only two things that are true in this world. Many investors, however, make investment decisions without considering the tax impact. The impact of the Treasury on investments can be minimized by investing in funds that, in Spain, have the transfer as an advantage.

It is not enough just to follow these points. As individuals, studies of behavioral finance show that we are not always rational about money. Numerous examples have shown that individual investors do not invest until financial markets have risen and then sell them when they have fallen. This type of behavior leads the average investor to lose up to 4% each year.

The moment to invest is impossible to get right, that is why making periodic investments month by month helps us avoid trying to make market “timing”, also in the world of pensions it is preferable to make monthly contributions than not leave everything for the final closing of the year. The tax advantages in pensions are produced the following year with the income statement, therefore for the contributions to your plans to be efficient it is necessary to contribute monthly and look for plans that have the lowest possible cost, an efficient investment strategy and that correspond to your risk profile.


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