debenture risks
Before making you dream about capital gains , let's talk a little about possible losses .
Risk of loss due to conflict of interests
Corporate bonds ( Debentures, CRI, CRA ) are one of the investment products that most remunerate banks, their managers, and Autonomous Investment Agents . That said, there is a very high propensity for them to offer these products indistinctly (poorly selected) to their customers. So make sure you are being guided by a reputable banking institution. Reliability comes before profitability and is the key to success.
Risk of loss that resides with the investor.
If you look in the mirror, this is the main source of investment risk . The chances of you and I letting ourselves be carried away by our feelings (greed, avarice, fear, excitement, etc.) are extremely high. In terms of debentures , the most serious mistake I see people make is: buying based only on yield without carrying out a rigorous research on the issuing company .
Risk of loss due to early redemption
This risk is a variation of the risk that resides in the investor, as he often thinks that he will not need the money before the maturity of the debenture , but a situation occurs that changes everything and he is obliged to sell them. The most common reasons are: marital separation, loss of job and purchase of real estate by opportunity.
Risk of loss due to bankruptcy of the company issuing the debentures.
Lastly and most importantly: There is a risk that the company will not honor its commitments and that is why I insist that you do not invest in debentures if you are not going to carry out a careful selection process, that is, a credit analysis that does the job of separate the wheat from the chaff.
Tietê Highways
One of the last incidents we had with defaults in the world of debentures was with the company Rodovias Tietê , which simply did not pay its debenture holders .
Figure 1: Reasons for not buying Debentures Source: FDR
As we see in this article, the losses , with the company's default on its debenture holders, left a huge scar on this investor's skin. From the mistakes I mentioned above, we can see that it all started with an investment bank indiscriminately offering a low-quality bond to investors who got carried away by the promise of above-average earnings.
The risk and the losses
Losses are not restricted to the world of financial investments , they can be found routinely in the lives of ordinary people: in real estate bought off the ground plan that never got off the ground, investments in family ventures that only brought a headache, and so on. The truth about the investment world has to be told: investing is not easy, nor will it ever be, and doubt anyone who says otherwise.
However, for us to create a better future for our family, learning to invest and investing well is a step we must have the courage to take, it is the turning point between living to work and working to live.
To think about
- Afraid to invest? Ask yourself about the risk of not investing.