Course index:
- Basic Concepts of Money and Personal Finance
Introduction to the value of money, the importance of saving, and spending control. - Budgeting and Financial Planning
Create a personal budget, manage income and expenses, and set financial goals. - Inflation and Purchasing Power
Explanation of how inflation affects the value of money over time. - Interest Rates and Time in Finance
Differences between simple and compound interest rates and their importance in investments. - How to protect your savings. Protect yourself from scams.
How to protect your money from the scams that abound today - Basic Savings Instruments
Explanation of savings accounts, term deposits, and how they work. - Introduction to the Stock Market
Basic concepts of the stock market and its role in the global economy. - Actions: What They Are and How They Work
Explanation of stocks, types (common and preferred), and how to invest in them. - Bonds: What They Are and How They Work
Differences between corporate and government bonds, and their importance in diversification. - Risk vs. Return on Investments
Concept of risk and how it affects investment choices. - Diversification and Creation of Basic Portfolios <<<<<<<<<<<
Basic diversification principles to reduce risk in an investment portfolio. - What is an ETF and How Does it Work?
Introduction to ETFs (exchange-traded funds) and how they track market indices. - Introduction to Mutual Funds
An explanation of mutual funds and their benefits for beginners. - Financial education for the family.
- Economic Cycle and its Impact on Investments
How the stages of expansion and contraction in the economy affect investments. - Growth Stocks vs. Value Stocks
Differences between these types of actions and when each is appropriate. - Fundamental Analysis of Stocks
Explanation of how to analyze a company's value based on its fundamentals. - Basic Technical Analysis: Charts and Patterns
Introduction to basic technical analysis tools, such as trend lines and candlestick patterns. - Options: What They Are and How They Work
Basic concepts of call and put options and their uses in investments. - Futures: What They Are and How They Work
Introduction to futures contracts and their application in investment and speculation. - Introduction to Cryptocurrencies
What is digital money, how it was created, and the characteristics of Bitcoin and other cryptocurrencies. - Blockchain and its Importance in Finance
How the technology behind cryptocurrencies works and their applications in finance. - Risks in Cryptocurrency Trading
Volatility, fraud, and regulations in the cryptocurrency market. - Leverage Principles and its Risk
What it means to trade with leverage and the associated risks. - Investor Psychology and Emotion Management
How emotions influence investment decisions and tips for managing them. - What is Algorithmic Trading
Basic explanation of the use of algorithms to perform operations in the financial market. - Financial Analysis of Companies
Introduction to basic financial statements and their interpretation for valuing companies. - Investing in Commodities: Gold, Oil, and Other Goods
How commodity investments work and their role in diversification. - Advanced Investment Strategies: Hedging and Derivatives
Introduction to strategies for managing risks through financial derivatives. - Creating and Managing a Complete Portfolio
Practical application of prior knowledge to build and manage a diversified portfolio.
Imagine you're in a playground with lots of food stalls. You're hungry and only have 100 pesos to spend. You can use it all at one stall, like a hot dog stand. If the hot dogs are delicious, great, you ate well. But if the food is awful, you're left broke and hungry. Now, consider another idea: you spend 50 pesos on hot dogs and 50 on pizza. If you don't like the hot dogs, the pizza saves you. This is "diversification": spreading it out so you don't rely on just one thing.
It's the same with investments. In the previous article, we talked about risk and return. Risk is the chance of losing money. Return is what you can earn. Safe investments, like a fixed-term deposit, have little risk and little return. Risky investments, like stocks, have more risk but a higher potential return. Diversification helps you manage that risk. It's like not putting all your eggs in one basket. If the basket falls, you lose everything. If you spread them out, you're left with something.
Why am I telling you this? Because investing well isn't just about choosing between high or low risk. It's also about spreading your money so you don't risk it all on one thing. If you put everything in one place and it goes wrong, you lose everything. If you diversify, something can turn out well even if something else fails. Let's explain it step by step, with simple examples, so you can understand it and use it yourself.
What is diversification? A simple way to understand it.
Let's start with the basics. Diversification means spreading your money across different places. You don't put it all in one place. Let's go back to the food court. If you spend 100 pesos on hot dogs and pizza, you're diversifying. You're not dependent on just one stand. If the hot dog is bad, pizza will save you.
It's the same with investments. Instead of putting all your money into one stock, you can divide it up. A little in stocks, a little in bonds, a little in a fixed-term deposit. If one thing goes down, the others help you out. That way you don't lose everything.
Why does it matter? Because nothing is 100% safe when investing. If you put 10,000 pesos in ice cream stock and it rains all summer, the company sells very little. Your shares go down and you lose money. But if you put 5,000 in stocks and 5,000 in a safe bond, the bond saves you a little. That's diversification: not betting everything on one option.
How does it connect with risk and return?
Remember the previous article? We said risk and return go hand in hand. If you want to earn more, you take more risk. Stocks carry more risk than a fixed-term deposit. But they also carry more chances of profit.
Diversification comes into play here. It helps you manage risk without losing all the returns. It's not about choosing only safe options or only risky ones. It's about mixing them up so they work together. Think of a soccer team. If everyone is a forward, you score goals but you don't defend. If you lose the ball, they ruin your situation. Now, with forwards, defenders, and a goalkeeper, you're more balanced. You don't always win, but you don't lose everything either. Diversification means putting together a team like that with your money.
Why diversify? So you don't have to rely on just one thing.
In the real world, things change a lot. Businesses can do well or poorly. The country can be calm or turbulent. If you put all your money in one place, you depend on it turning out well.
For example, imagine you invest everything in a cell phone company. If they release an amazing cell phone, you make a lot of money. But if the phone doesn't work well, the company loses, and so do you. If you diversify, nothing serious happens.
Let's say you have 10,000 pesos. You put 5,000 in that cell phone company and 5,000 in a government bond. If the company fails, the bond gives you some profit. You don't earn as much as if everything went perfectly, but you don't lose everything. That's the beauty of diversification.
Diversification and time: short and long term
In the previous article, we talked about time. For everyday expenses, you look for safe things. You can't risk rent or food. The risk has to be low there.
For the future, like retirement, you can take more risks. You have time to wait if things go down. Diversification works for both. But how you use it changes.
For the short term, you diversify with easy options. For example, a little in fixed-term deposits and a little in safe bonds. For the long term, you mix safe and risky options, like stocks and dollar-denominated bonds. This way, you hedge the present and bet on the future.
Easy example: putting together a portfolio
An investment portfolio is like a backpack with your money spread out. Imagine you have 10,000 pesos to invest. You want something for now and something for later.
You can put 7,000 in safe havens. For example, 4,000 in a fixed-term deposit and 3,000 in a bond. That gives you peace of mind for today's expenses. You can put the remaining 3,000 in shares of a reputable company.
If stocks rise, you earn more for the future. If they fall, the fixed-term deposit and the bond take care of you. This is a diversified portfolio. Not everything is in one place. You have a mix to stay calm and grow.
What happens if you don't diversify?
If you don't diversify, you're putting everything on one card. Let's go back to the example of the 10,000 pesos. If you put all of them into shares of a company and that company does poorly, you lose everything.
In Argentina, this is even more important. Here, prices rise rapidly and the dollar fluctuates a lot. If you invest everything in pesos and inflation rises, your money is worth less. If you invest everything in a stock and the company goes bankrupt, you're left with nothing.
Diversifying protects you. It doesn't prevent all problems, but it makes them less painful. It's like having a plan B if plan A fails.
How to Start Diversifying: Simple Steps
How do you diversify? It's easier than it seems. First, think about how much you have to invest. Let's say it's 20,000 pesos.
Second, decide what that money is for. Is it for current spending or savings for later? If it's a mix, set aside a portion for each. For example, $12,000 for now and $8,000 for the future.
Third, look for options. For the current 12,000, you can put 6,000 in a fixed-term deposit and 6,000 in a secure bond. For the future 8,000, you can put 4,000 in stocks and 4,000 in a mutual fund. That way, you have four different options.
Things to diversify in Argentina
In Argentina, there are several options for distributing your money. One is a fixed-term deposit. It gives you a small return and is secure. Another option is government bonds, such as the AL30. They can be in pesos or dollars.
There are also company stocks. For example, banks or food companies. They're riskier, but they can grow significantly. And mutual funds, which combine several assets for you.
You can put a little bit into each. If you have 10,000 pesos, maybe 3,000 in a fixed-term deposit, 3,000 in a bond, 2,000 in stocks, and 2,000 in a fund. That way you're diversified and covered.
Common mistakes when diversifying
Sometimes people get confused. Some people think diversification means investing money in anything without thinking. But that's not the case. You have to choose wisely.
Another mistake is not looking at how things are going. If you invest in five companies, but they're all in the same sector, you're not truly diversifying. If the sector is doing poorly, they all go down together. That would happen if you put together a portfolio and hold Banco Macro, Galicia, Hipotecario, Supervielle, and BBVA. When the banks go down, all your stocks will go down equally. The idea is to spread them across different things: a food company, a government bond, a fund. That way, if one fails, the others can help you out.
Conclusion: Diversifying is taking care of yourself
In the end, diversification is a way to protect your money. It goes hand in hand with what we talked about before regarding risk and return. It doesn't eliminate risk, but it does reduce it. It gives you peace of mind and a chance to win.
For today's expenses, diversify with safe items. For the future, combine safe and risky items. Build your wallet like a well-thought-out backpack. Whether you spend 10,000 pesos or more, spreading it out is key.
See? It's not that complicated. Think about what you need, divide your money, and that's it. That way, you're prepared for whatever comes next.
Next course date
Questions for you to reflect on
Would it be appropriate to diversify if I bought several oil companies from the same country?
Why is it important to invest in low-volatility instruments?
What is the risk of investing in only one country?
A brief overview of The Pocket Investor
The Pocket Investor is a project that combines experience and passion for financial education to help you transform your relationship with money. Through personalized mentoringWe help you design investment strategies tailored to your goals and needs, optimizing your portfolio to address challenges like inflation and the dollar.
The books on finance and investment, including the popular The Argentine Pocket Investor - El Inversor de Bolsillo argentino, are practical tools that explain complex concepts in a simple way, bringing the world of investments closer to anyone interested in financial growth.
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