Risk vs Reward: How to Know if an Investment is Right for You

Thursday, May 17, 2018, 6:00 AM | Leave Comment

Even if you grew up studying markets over the past few decades, the wild shifts in the modern markets can be treacherous even to seasoned investors.

Gone are the days of buy and hold investing. Today’s investors must be savvier with how to enter and exit the market to ensure that their capital is safe and that their investments are turning a decent profit.

Understanding how to assess risk and reward to determine if an investment is right for you is key to making moves that meet your investment goals.

Here are a few things to consider along these lines.

  • Where to Begin

    According to RMR Wealth Builders, Inc., wealth management and financial planning are two ingredients of successful long term investing strategies.

    The first identifies how you handle your money in an investment context, and the latter explains the type of strategy you have moving forward with your investments.

    When your money is properly managed and you have a well thought out financial plan, chances are you will be in a good position to reap more rewards than risks when investing.

  • The Truth about Investment Risk

    There is a simple truth that all investors should take to heart. No matter what the investment opportunity, there is no guarantee that your investment will reap huge rewards.

    What is almost always guaranteed is that the risk is greater than the rewards. This is not to say you should not become an investor, but it is a reminder that helps you to put your investment strategy into perspective so that you do not get burned. It is also why investors should spend more time making informed investment decisions.

  • Mitigating Risk

    While it is true that there are a lot of risky investment strategies, it is also true that it is possible to mitigate risk.

    You can preserve your capital by not putting all your eggs in one basket when investing, making sure your portfolio is diversified.

    Alternatively, you can hedge your bets in many directions to better ensure that you will not take the full brunt of a loss, helping to preserve your capital for more investment opportunities.

Investing is risky business—especially when you are new and inexperienced in how to handle risk. Successful investors spend a lot of time learning everything they can about the type of investment they are interested in entering.

To toss money at a market without having good reason for doing so is not a healthy investment strategy. You should always be prepared to justify with good facts and reasons any investment decision you make.

The other side of this coin is that you should also be your own worse critic so that you will not become lazy when it comes to justifying the risks you take with your investment capital.

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