How do you balance high yields with the need for security in your investments? Don’t worry, in this article we will go deeper into these two factors. As you well know, investing is a decision that requires analyzing numerous factors, but one of the most important is to understand the relationship between profitability vs. security.

In times of economic crisis, many investors choose to reduce risk and protect their capital. For example, during the pandemic of 2020, investors took refuge in assets such as government bonds. However, this also meant sacrificing some of the potential return.

What is most important to you as an investor: do you want high returns or do you want to protect your capital? This question can define your strategy and determine your long-term results.

What is profitability in an investment?

As we mentioned in our previous article, profitability is the benefit you get from putting your money to work through an investment. It is a measure that indicates how effective your financial strategy is in generating returns relative to the amount invested. In simple terms, it is the “reward” for taking the risk of investing your capital, and can come in the form of interest, dividends or appreciation in the value of the asset. There are different types of returns, of which the following stand out:

Nominal return

It expresses the percentage of profit or loss that an investment generates without considering the impact of external factors such as inflation or taxes. It is considered the most basic calculation and is mainly used to know the gross yield of an investment. For example, if you invested $10,000 pesos in a fund and it is now worth $12,000 pesos, by calculating the initial value, minus the final value, between the initial value, and multiplying that result by 100, it indicates that your investment had a gross yield of 20%.

Real profitability

This considers the impact of inflation on your investment return, providing a more accurate picture of purchasing power growth. If inflation is higher than the nominal return, you could have a loss in real terms, even if the nominal return is positive.

Expected return

Estimates the average return you could obtain from an investment, considering several possible scenarios and their probabilities. It is used to evaluate risks and decide between investment options.

Understanding the different types of returns and how to calculate them is fundamental to evaluate the performance of your portfolio, and thus make the best decision in an informed manner.

What does investment security mean?

We call investment security the protection of capital against financial risks that could generate losses. This implies prioritizing low-risk options, where the probabilities of obtaining a stable and predictable return are higher. Investment safety focuses on minimizing exposure to volatility and preserving the original value of money, even in challenging economic contexts. In general, safe investments such as government bonds, certificates of deposit (Cetes in Mexico) or savings accounts offer lower returns, but provide stability and peace of mind.

Factors influencing safety:

  • Solvency of the issuer: Solid institutions offer greater protection. As we have already pointed out, Cetes are a clear example of this, because they have the backing of tax revenues and the capacity to print money. This makes them low-risk financial instruments.
  • Diversification: Invest in multiple assets to minimize risks.
  • Time horizon: The longer the investment time, the greater the security in volatile markets.

Profitability vs. safety: Identify your priorities

The key to choosing between profitability and security is to understand your investor profile and financial objectives. Here’s how to determine this:

  1. Investment horizon. If you plan to use the funds in the short term, prioritize security. On the other hand, if you invest for the long term, you can assume greater risks to seek higher returns.
  2. Ability to take risks. Evaluate how much you are willing to lose without compromising your financial stability. This aspect is key to define your next steps.
  3. Financial goals: Save for retirement? Buy a home? Each goal may require a different approach.

Strategies to balance profitability and safety

Finding the balance between profitability and security may seem complicated, but with the right strategy, it is possible:

  1. Smart diversification: “Don’t plant your whole garden with one seed. Combine safe assets such as bonds with high-yielding investments such as stocks or real estate.
  2. Mixed portfolios. Design a portfolio that combines fixed income for safety and equities to increase profitability.
  3. Periodic review. Priorities change over time. Review your portfolio to adjust the balance according to your financial situation.
  4. Hybrid instruments. Consider products such as balanced investment funds, which manage risk by mixing assets of different levels of safety and profitability.
  5. Team of professionals. One of the most effective ways to balance profitability and security when investing is to have the support of a team of experts. At Algo Global, our team of professionals is trained to analyze your financial objectives, risk tolerance level and current situation, designing customized strategies that prioritize both the safety of your capital and the maximization of returns.

This approach not only allows you to diversify your investments in the most promising sectors, but also to maintain the peace of mind of knowing that your decisions are backed by expert analysis and professional management that reduces the margin for error.

Final tips: How to make the right decision?

The question “Profitability or security?” does not have a universal answer, as it depends on your objectives, risk tolerance and time horizon. Finding the right balance is essential to achieve your financial goals in a sustainable way.

Consulting a specialized team can make the difference between investing in a risky way and doing it with confidence and control. At Algo Global, we understand this duality and work with you to design customized investment strategies that combine both aspects.