The Dangers of Investing – 9 Ways to Manage Your Risk

Risk means different things to different people in investing. It can mean the possibility of losing money. It can mean the set back of a disappointing return. Whatever the case, ‘risk’ spells D.A.N.G.E.R. when it comes to investing, right?

That’s why, I’m here to tell you that it’s oh-so-important to put in place some important injury prevention measures to help protect you from the perils of risky investment strategies. Follow these proven measures and you should be as good as gold.

Photo Credit: Moneyuncensored.com

Photo Credit: Moneyuncensored.com

1. Know what you own. If you don’t know or understand what you own in your portfolio, ask. Each kind of investment will bring it’s own set of risks and objectives. For instance bonds are subject to interest rate risk. As the interest rates rise the value of your bond will decrease. Educating yourself on each investment will give you clarity and empower you to make changes you see fit.

2. Diversify. Never put all your eggs in one basket. If the basket falls and everything breaks – the only thing left is a big mess to clean up. A single investment source will never satisfy all your needs. The best way to have both growth and income is to diversify your money into a balanced approach of different investments.

3. Emergency Money. Six to twelve months of living expenses in cash positions will give you the freedom to never HAVE to sell investments in a hurry. Most investments like stocks, bonds and mutual funds can be sold quickly, but that should always be in an investment decision not a cash flow decision.

4. Stay with investments you understand. Keeping your investment portfolio simple is the best plan for you. To achieve this use stocks, bonds and mutual funds. The greater purpose is to understand what you are doing with your money and what to expect from your investments. If you can’t explain it to a 12 year old, you shouldn’t own it!

5. If it sounds too good to be true, it is! There is always a new investment on the block. Do not get caught up with quick returns on your money. The best timeline for success is to have a long range goal with your investments. Then work that plan.

6. Commitment. This is a cruicial requirement to to reduce your risk in investing. Committment to a plan is much easier when you have thought through different scenarios ahead of time. Thus reduces a panic and sell mentality.

7. Understand investment cycles. Over the last 100 years the stock market has gone through many cycles. This important fact will help you stay the course when you are in a down cycle. Eventually, it will cycle back up.

8. Don’t get greedy. Remember the old saying, “Pigs get fat but hogs get slaughtered”? As human beings we have a tendency to get selfish at times. Try to recognize your trigger, especially when making investment decisions. If you don’t, you will chase returns when in fact you should be sticking to your plan – remember commitment?

9. Don’t borrow money to invest. Need I say more?

These 9 ways to help you reduce investment risk should empower you and take the worry out of investing. Step 1: Examine your tolerance for risk. Ask yourself, “How confident with investing am I?” Step 2: Email me at abritz{at}legacywealthmn.com for a copy of our FREE Investment Risk Questionnaire to get started!