Managing Your Investment: How to Plan for Risk in Your Investment Portfolio
Friday, September 29, 2017, 6:00 AM | Leave Comment
In the world of investing, one of the more basic concepts is the tradeoff between risk and reward.
In the case of almost every financial instrument ever created, increased potential rewards are balanced by increased risk.
As such, one of the most important things you can do as an investor is to manage and plan for the risk that is built into your portfolio.
Here are four tips you can use to take charge of the risk in your investments and mitigate losses when they occur.
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Diversify
It may be so often said that it’s almost a trope, but diversification in an investment portfolio is essential.
Putting all of your eggs in one basket ensures losses if the one asset you’re heavily invested in ever suffers a major downturn.
It’s also important to diversify not only into multiple stocks, but into multiple instruments.
Bonds, for example, can offer a safe haven during periods of market volatility, as can certain commodities.
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Build Savings
The reality of investing is that no matter how well you manage your risk, there will always be some chance of losing a substantial amount of money.
This is why it’s important that you build up a standard savings in addition to your investments, especially if you are investing as a means of financing your retirement.
A reserve of money that won’t be affected by economic conditions can keep you afloat should anything negatively impact your investing nest egg.
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Know Your Risk Comfort Level
The reality of investing is that no matter how well you manage your risk, there will always be some chance of losing a substantial amount of money.
This is why it’s important that you build up a standard savings in addition to your investments, especially if you are investing as a means of financing your retirement.
A reserve of money that won’t be affected by economic conditions can keep you afloat should anything negatively impact your investing nest egg.
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Monitor Your Investment Options
Remember that the world of finance is a lot like the ocean – it’s constantly shifting, with waves and ripples moving businesses up and down the financial ladder daily.
Just because a particular company was a good or a bad investment today doesn’t mean that that will still be the case tomorrow, or next year.
For this reason, it’s incredibly important to continue monitoring the companies you’ve chosen to invest in, as well as other potential opportunities.
If you’re only investing a small amount of money in two or three companies, you can probably handle this on your own. If not, you may need help.
If you have a large amount of money invested in several companies, it can become extremely difficult to keep up on all the news that could be relevant to the financial health of your various investments.
An option available to you if this is your situation is to work with a service like CreditRiskMonitor or someone similar. These professionals make it their business to stay up-to-date on important financial information of publicly trading companies. Working with someone like this isn’t necessary for everyone, but in some cases it can prevent major losses and help you stay ahead of the curve.
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Kara Masterson is a freelance writer from West Jordan, Utah. She graduated from the University of Utah and enjoys writing and spending time with her dog, Max.
