Smart Quiz: Which Investing Risk Concerns People the Most?
- Losing Value
- Poor Liquidity
- Missing Out
- Inflation Loss
Answer: Missing Out
Every investment you make bears a potential risk. Placing money into mutual funds, stocks or annuities hoping to receive a substantial return is the goal for most investors. But for many, there’s that one investment they wished they would have put money into and didn’t. Now it’s taking off and making all of its investors wealthy while the ones who missed out are kicking themselves over it. If this is your fear, don’t fret. While taking a chance on any investment is a risk in and of itself, there are things to consider that will help you decide whether or not to make that leap.
Do Your Research!
Determined not to miss out on the next big profit return? Definitely do your research first. You don’t want to invest in a company that has a huge chance of going belly up. This is sometimes referred to as default risk. With stocks, for example, doing an assessment of the corporation’s financial history is important. If the business turns a good profit and doesn’t have a history of restructuring, investing in them may wise.
On the other hand, a buyout or sudden financial hit to the company could negatively affect your investment. Before making the final decision, look closely at the volatility involved. What’s the business’ profit margin over time? Is it steady or does it have periods of highs or lows? Customarily, a steady profit margin indicates a profitable return on investment.
Mix and Match Your Portfolio
Good investors have a multitude of investment types and income streams in their portfolio. As they build wealth, they diversify and reflect back on what worked and what didn’t. Many factors go into choosing an investment including:
- Overall amount of money invested
- Type of investment
- Risk level
- Return value
Many things need to be considered, but mixing and matching types and amounts is the best way to keep investment risks minimal. For example, having a mixture of CDs (certificate of deposit) and money market accounts is safer than pouring all of your money into leveraged ETFs.
Start off Small
If you recently passed up a once in a lifetime opportunity that could have made you a lot of money, don’t dwell on the past; look to the future. Next time you doubt yourself and are thinking of passing on an opportunity, consider starting off with a smaller initial capital outlay. You can always increase the amount as time goes on and the company proves itself.
You could also talk with a financial planner who will give you advice based on your existing assets and how much money you have to work with.
Take a Risk If You Can Easily Recoup Your Loss
When an investment offers a high rate of financial return in a short time, there’s an obvious loss risk too. Take on high-risk investments only if you have enough money to keep your lifestyle going if it doesn’t pan out. Always remember to protect your assets and savings accounts before you invest. If you can’t, consider something less risky.
There’s no guarantee you’ll see high yields with every investment you dive into. But that doesn’t mean you should miss out on a good money-making opportunity. However, you shouldn’t go through financial ruin over a bad deal either. Be smart with your money! Research and if necessary, ask for a second opinion from your financial advisor before moving forward.
~Here’s to Your Financial Health!