Individual investors are characterized by lower than market performance historically. Therefore, Compass Invest experts advise everyone to be very careful when approaching financial markets.

You probably think that financial markets are reserved only for people with "white collars". And you are wrong ... In the financial markets there is room for everyone and the development of the industry has made them more accessible than ever.

And you don't have to have a master's degree in finance to be successful. However, you need to do a few things - correctly determine your risk profile (the degree of risk you are willing to take) and investment objectives (expected return); make a trading strategy and plan; adhere to them in a disciplined and purposeful manner. If you feel you cannot cope somewhere along this road you can just trust the professionals to do it for you.

Of course, the opposite is also true - you should not underestimate the financial markets and the need to have basic financial knowledge about how they work and what you can expect from them.

Why invest in the financial markets?

"You will never achieve financial success and financial independence if you keep your funds in a bank account or in government bonds or other fixed-income products. This type of account often has a yield of less than 1%. Instead, you should look to the stock market, which has a historical rate of return of 10% since the 1920s" advises expert Rick Edelman*.

Financial markets, in general, can be defined as the necessary means, not only to maintain the purchasing power of your money (protection against inflation), but also to realize the growth of your savings and to ensure normal life after retirement. Of course, you must do this fully consciously, purposefully and by identifying all the risks that accompany these markets – in other words, in a professional way!

Another example is inflation of 3% per year (such as the one in our country at the moment) which will eat up half of the purchasing power of your savings in just 24 years! In other words, savings of 100,000 BGN would buy what 50,000 BGN could be buying now, after 24 years.

Here are some reasons why you don't need to be an expert to invest successfully in the financial markets:

The stock market is more accessible than ever;

Contrary to most people's expectations, stock markets are not scary and are not just a field for professionals. Terms such as price-profit ratio, book value, debt to equity, etc. may sound pompous, but in practice they are very logical and easy to understand (if you make a little effort to make sense of them).

In addition, the investment community does everything possible to facilitate the entire investment process, as well as to increase the investment culture of its clients.

You can take advantage of free consultations and trainings, online funds transfer, 24-hour support, online account opening and thousands of other amenities. All you have to do is make a decision and start the investment process. And you can do this from your comfortable sofa in the living room.

However, keep in mind that you should not take markets lightly!

Many investors think they are smarter than financial experts and even that they can outsmart the market. And often some of them even succeed... The truth is, however, that the statistics are not on the side of the mass individual investor.

Individual investors have proven over the years that they do poorly when they invest alone and compare themselves to market indexes. As can be seen from the chart below, in the long run (for the period between 1998 and 2017) the average annual return on investors is "tragic", according to J.P Morgan Asset Management.

More precisely - the average investor has realized an annual return of only 2.6%, which is almost at the bottom of the ranking, among the assets under consideration and only slightly above inflation of 2.1% for this period. Even a more conservative mix of stocks and bonds (40 to 60%), or bonds alone, performed nearly twice as well as average investors.

** Data: J.P Morgan Asset Management

Where are individual investors mainly wrong?

Psychological factors contribute to half of the reasons that determine the failure of investors. The main ones are related to:

Fear of loss: Fear of loss and panic sales among investors lead to the withdrawal of capital, often at the most inopportune moment.

Near-sightedness: Deciding on part of the portfolio without taking into account the effect on the entire portfolio.

Stiffness: Focus on what has happened before, in the absence of flexibility to the new changed environment.

Lack of diversification: Incorrect perception that you are diversified when you have actually invested in interconnected assets.

Following the crowd: You follow the "herd" that leads to "high purchases and low sales", or the complete opposite of what you need to do to be successful in investing.

Fear of investing due to past losses: Often investors do not take the necessary or correct actions because they have failed in the past.

Media impact: The media often has a serious effect on investors' investment decisions and this often leads to incorrect or emotional decisions.

Extreme optimism or pessimism: As they say, extremes are never a good solution. In investing in financial markets, extreme optimism or pessimism can be especially dangerous for investors.

Of course, there is another way for individual investors to access the financial markets - and that involves trusting professionals. What is important in this case is to find consultants who will correctly determine your risk profile and investment goals and will offer you a product that best suits them.

If you liked this article and you want to find alternatives for your savings - see how you can make it through investments in MF "Compact Global Trends".

COMPASS INVEST - Your personal Investment Advisor.

Compass Invest JSC is licensed management company by the Financial Management Commission since 2006.

Important information: You should keep in mind that the value of the shares and the income from them may decrease, profits are not guaranteed and there is a risk that you will not return the full amount of the invested funds. Past performance is not a reliable indicator of future performance, unit prices and their returns may decrease as well as increase, and investors may not receive the amount they originally invested. No profits are guaranteed. Investments are not guaranteed by a guarantee fund set up by the state or another form of guarantee. The prospectus and the document with key information about the investor can be obtained on paper and/or electronic media in Bulgarian in the office of the management company on the address: Sofia, 19 Georg Washington Str., 2nd floor every working day from 9 am to 5 pm and on the website of Compass Invest JSC.

* Rick Edelman is the founder and CEO of Edelman Financial Services, one of the leading financial consulting companies in the United States and author of The Truth About Your Future: The Money Guide You Need Now, Later, and Much Later.

** Association of Special Investment Purpose Companies - special investment purpose company, investing mainly in real estate; 60/40 - a portfolio consisting of 60% shares and 40% bonds; 40/60 - portfolio consisting of 40% shares and 60% bonds; EAFE - includes markets in Europe, Australia and the Middle East.