5 Strategies to Minimize Investment Risks
Investments are the ultimate tool to increase your wealth in higher proportions. An investment, if done right, can make you a millionaire over the course of a few years – or even months. However, they are not without their fair share of risks. Many people have failed to make the best out of their investments simply because they just didn’t do it right!
From a distant glance, it seems like there aren’t too many factors involved when it comes to making a decision to invest. But that’s just not true. Yes, luck plays a big role in how your investment outcome turns out to be, but there are so many other modifiable risk factors that can help you achieve a favorable outcome every time you invest!
Here are the top 5 strategies to minimize investment risks and make the best out of your money’s worth!
1) Invest Across Asset Classes.
Before you move on to actually investing your money somewhere, you need to figure out what are some of the possibilities for your cash. There are multiple asset classes, each with its own benefit. Many portfolio managers advise people who are just starting out to make a safe bet: to invest where the returns look good and there is not much risk involved.
However, making a safe bet is not all about investing where the returns look good. When it comes to ensuring a promised return on an investment, it can be extremely helpful to invest in multiple asset classes! Investing across a set of safe asset classes can improve your chances of getting a favorable outcome by many folds!
Try to simultaneously invest in multiple asset classes such as equities, bonds, and real estate.
2) Diversify Within Asset Classes.
Even within an asset class, investing in multiple sectors or companies is optimal.
Sticking to one type of stock can only take you so far. Similarly, sticking to one client can be disappointing when the day comes. Keeping your options open is the key. If you are not comfortable enough with multiple asset classes, try investing generously in one class that you are comfortable with. To prevent a “dead-lock” outcome for your investment, try to invest in small proportions with multiple different companies.
This will not only help you secure a favorable outcome, but also give some exposure as to which companies are going to be a safe bet for future investments.
3) Define Your Risk Tolerance.
Your age, goals, knowledge, and experience determine how much risk you can take.
These multiple factors coexist and affect your investment plan in more than one way. This is why you need to define this determinant. Determine your limitations first. Knowing how much you can, and how much you cannot is extremely useful when it comes to expecting a realistic outcome. This will also help you look at things pragmatically, even when things don’t turn out great.
Once you have your “risk hard limit”, making safe investments becomes second nature. You can also opt to consult an investment manager to determine your risk limit and, thus, your subsequent options.
4) Time Your Investments Right.
Timing is everything. Enter when the market is low and exit when it’s high.
Most people think that investments boil down to just one thing, your capital. The more you put in, the more you reap when the time comes.
However, that is simply not true! Investments can be so much more than just your capital. You are in for a ride if you think you are guaranteed a favorable outcome simply because you put in a lot of money. Timing is everything! If you invest when the stakes are high, thinking that they will go even higher, your money’s worth is bound to drop. Similarly, if you invest when the tide is too low, well, your money might just get washed away because the stock might never take off.
It’s always a good idea to consult an investment manager to determine the best time for your investment.
5) Research the Market.
Even the best of us take calculated risks, and research is what allows us to do so.
No matter how seasoned a campaigner is, research is imperative. If your bid is not “educated” it’s halfway down the drain already. Comprehensive market research is essential because it allows you to gaze over all of your options and choose the best for your money’s worth. A comprehensive research market can also help you understand market trends and seasonal setbacks, which can help you form reasonable expectations as well!
A good investor might never know the outcome of an investment. However, a good investor always knows what to expect!
Summary
Investments are wonderful if only done right. Too much can cause a curious case of default, and too little can cause good old corporate-slave syndrome. Knowing your hard limits when it comes to investing money, coupled with a reasonable knowledge of what to expect can help you stabilize your finances much more quickly than anything else!
Of course, it also if you discuss your plans with an investment manager beforehand. An investment manager can help you make informed decisions, provide you with a market overview, present to you your various options, and back your investment with an educated approach.
If you are looking to consult an investment manager, you are in the right place! H-Dot is Pakistan’s leading portfolio management company. Our investment managers work with you, hand-in-hand, to make the best decisions for you and your family! Contact H-Dot today and get started with your investment journey!