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Are shares a safe investment?
His is a question that can hardly be answered in a generalized way. An investment in shares that seems safe for one person can mean completely unsafe for another. But what factors determine whether a stock can be considered a safe investment? In principle, there is no absolute certainty, and the future is uncertain. We all know that! Nevertheless, things can be steered to a certain degree with common sense and clever calculation, even for the future. This also applies to investments, which we can control ourselves and make successful with a few basic rules.
This also applies to an investment in shares. With a share, one participates in the equity of a company and becomes a co-owner of the company. If the shareholding is to be as secure as possible, then it is crucial that the company survives and does not go bankrupt. Moreover, it would be even better than just safe if the company can increase sales and profits in the future. If this is true, then its shares will also be “safe”. Now the big question is: Which companies are these?
These are companies that pursue outstanding business models. Business models that are unique and cannot simply be copied. Business models with high market entry barriers for competitors. A company that is very well positioned in this way has pricing power and can achieve high margins in its business. Classic examples of such companies are Google, Microsoft and Apple. All three companies that have dominated the market in their sectors for years or decades and have grown almost magically. And, of course, have given their owners, i.e. shareholders, much pleasure.
Now, however, the task is not to identify these companies after the fact, but in advance.
Three stock trends for a safe investment
In which areas will there be comprehensive economic and social changes in the future? Where will high growth be expected?
To this end, Genève Invest has defined three major megatrends for the future, i.e. for the next 10 or 20 years:
- International consumption: More and more people in Asia and Africa will rise into the middle class and adopt Western consumption habits.
- Progressive aging of the global population: The need for medical services and innovations will increase.
- Technology and digitization: We are currently undergoing the digital revolution. More and more areas of our everyday lives are being shifted to the web. The need to make intelligent use of the flood of data will become greater.
Almost all of the companies and stocks identified by Genève Invest as investment cases participate in at least one of the three megatrends. So these are stocks that are seen as having great growth potential.
Once we have identified a selection of good stocks, the task now is to anchor them in a portfolio that is as broadly diversified as possible. Broad diversification is important here in order to increase the security of the portfolio and to keep “cluster risk,” i.e., concentration on only a few stocks, as low as possible. Are you unsure about the security of your portfolio? Request a free, no-obligation portfolio analysis now.
Nevertheless, even shares in outstanding companies will experience normal price fluctuations, which many people find unpleasant – especially when they go down.
Our conclusion on shares as a “safe” investment
Here’s where the time factor comes into play. The more time (and thus patience) an investor has, the less the daily price fluctuations of a stock matter. After an investment period of five or more years, a share becomes “safe”! Thus, we do not find a single ten-year period on the major stock markets and stock indexes such as DAX, Eurostoxx, Dow Jones, Nasdaq or S&P 500 in which a broadly diversified investor would have lost money. However, it must be added that past developments cannot always be extrapolated 1:1 into the future.
Nevertheless, as mentioned at the beginning, common sense and smart calculation help to make a safe investment even in the uncertain future. This does not exclude shares as a safe investment.
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