No matter the investment you are considering making, there is risk. But, it is only by taking risks that we can better our situation.
Now I don’t want you to assume I will give you investment advice in this article. That is not my intention. My goal is to educate you on some strategies to lessen the risks you are taking.
In today’s post I am going to give you 7 tips on investment risk management.
“Risk comes from not knowing what you’re doing.” Warren Buffett
Investment Risk Management Tip #1: Diversify
There is an old saying about not putting all your eggs in one basket. This is especially true in investment strategies.
It is wise to have a diversified investment portfolio. An example could be:
- 40% in stocks
- 30% in bonds
- 20% in real estate
- 10% in cryptocurrency
Now, that is just an example. But by diversifying, if one area is in the red, the odds are good another area will be in the black.
“The broker said the stock was “poised to move.” Silly me, I thought he meant up.” Randy Thurman
Investment Risk Management Tip #2: Follow The Trend
Most investments develop a trend. You can measure trends by running a moving average for 60 or 180 days to understand the trend.
Most investment experts use trends for short term investments. When the trend breaks, they sell. It is that simple.
“How many millionaires do you know who have become wealthy by investing in savings accounts?” Robert G Allen
Investment Risk Management Tip #3: Don’t Let Fear And Emotions Control You
Some investments carry high volatility. They can move up and down faster than a speeding roller coaster. If you have a tendency to fear easily, you just might want to stay away from investment areas that are volatile.
A good example was when the stock market took a serious down-slope in 2008. Investors rushed to sell off and take serious losses in the hope they would not lose everything. But those who just hung tight managed to recover their losses about 4 years after. Many even made a healthy profit.
“We don’t have to be smarter than the rest. We have to be more disciplined than the rest.” Warren Buffett
Investment Risk Management Tip #4: Have A Separate Cash Reserve Portfolio
What happens if you have an emergency and you need cash, and the investment market is in a bear stage? Do you sell and take a loss?
The wise investor has 2 separate portfolios:
- An investment portfolio
- A cash reserve portfolio
The investment portfolio is made up of investments that can stay put when the market is down. But the cash reserve portfolio has low risk, low volatility investments. They are predictable. These investments may not enjoy big profits, but they also do not face heavy losses and can be cashed in without any stress.
“When you sell in desperation, you always sell cheap.” Peter Lynch
Investment Risk Management Tip #5: Follow The Ones Who Have Had Success
It just makes good sense to listen and follow the investment strategies of success gurus.
I have put various quotes in this article from successful investors… Peter Lynch and Warren Buffett are both highly respected investors that everyone and anyone should listen to and follow their investing advice.
They are not right about all, but their track record shows their right percentages are fare above their wrong ones.
“The aim is to make money, not to be right.” Ned Davis
Investment Risk Management Tip #6: Look For Reliable Future Earnings Forecasts
Some companies can have easy predictability of their future earnings. And investing in a company that has a bright forecast in future earnings by a reliable predictor can make your investment much less risky.
Some things to stay clear of to lessen risk on future earnings are:
- The company has low coverage by analysts
- The analysis of a company is inconsistent via various analysts
- Or if it is a new company and has no or little track record
“If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.” Peter Lynch
Investment Risk Management Tip #7: Understand How Interest Rates Can Affect Bonds
While investing in bonds can be wise, you do need to understand that if interest rates are raised, bonds can lose 10 to 15% of value.
Most experts say that short or medium term bonds are much less risky because of this possibility.
“Your assets are your employees. Invest more on those performing well. Let the non performers go.” Manoj Arora
While I said that I was not going to give you any investment advice at the start of this article, I have to take that back.
Because you do need to invest in yourself… Your knowledge… Your talents.
And I wrote and published a book that will be an investment in yourself. It is called To The Top and you can get a copy here.
The fact is, life and getting ahead does take risk. But you can manage that risk if you follow the advice I gave you today and I do suggest you bookmark my blog so you can keep up to date on future posts.
You see, I have the belief that when I help others succeed, I am succeeding too.
So if you have any questions or feedback, please state them in the comments area and I will get an answer for you. And please share this with others.
“There is no investment you can make which will pay you so well as the effort to scatter sunshine and good cheer through your establishment.” Orison Swett Marden
To The Top!