Profitability and risk are the two opposite poles within which investors operate. Planning investments well requires detailed work, which must begin by defining the level of risk one is willing to assume. Banks, for example, conduct suitability tests for any client they are going to assist with their investments, specifically to understand their risk profile. Furthermore, the investor should be thoroughly familiar with the investment alternatives offered to them. This is also where the suitability test, which banks conduct, comes into play. It would then remain for the investor to design the future scenario they anticipate, based on the hypotheses that make it feasible.
However, we then face irrational markets that, in their eagerness to discount the future, fluctuate between excesses. I am not talking about bubbles, as bubbles are only recognized when they burst. I am referring, for example, to being carried away by market trends or overreacting to new information. Fear is rational, and all too often synonymous with a lack of information. But panic and euphoria are not. Being conscious and performing thorough prior preparation may not be enough for investors to properly manage the risk assumed. Behavioral finance studies how investors frequently make decisions based on behavioral biases.
Financial education is fundamental for making sound decisions when planning investments. However, it is also important to be disciplined and prudent when managing them. In a context as anomalous as the current one, marked by negative official interest rates and an exceptionally expansionary monetary policy, the search for profitability can lead to investment excesses. That is why now, even more than before, it is important to be accompanied by the best professional advice.
José Luis Martínez Campuzano, spokesperson for the Spanish Banking Association
