How To Minimize Your Investment Risk

2019/02/25

People place their money in investments to increase their wealth. However, these investments are not without risks. You should be mentally and emotionally strong to face the outcome of your investment. Sometimes you have to bear losses along with profits also.

Risk involved in investment cannot be removed but it can certainly be reduced. The best way to minimize the risk factor is to diversify your portfolio. Diversification means investing money in different assets instead of putting all of it in one asset. Diversification is highly recommended by experts and professionals as it is assumed that even if a person loses all his or her money in one investment, he or she might gain profit in other investments. Therefore, investing some of your money in low risk investments is a good idea. You can diversify your portfolio to offset risk in a number of ways

Invest in shares

You should select the companies whose shares you are interested in buying after doing thorough research. Compare the performance of the companies with each other to know which company is performing better than others. Each company’s past and present performances should be analyzed carefully. Learn about the companies that are holding top positions in the market.

When you buy shares of your chosen company, you become the shareholder of that company. You are entitled to receive dividend after a certain period of time. If the company gains profit from its business then that profit is shared with its shareholders. But if the company suffers losses then you do not get anything. The value of shares keeps on changing. You can buy and sell shares either with the help of a broker or brokerage firm. Buy shares of different companies.

You can even invest in small or new companies. These firms might do well in future and earn you huge profits. The advantage of investing in a new company is that the prices of its shares are very low. The prices of shares rise and fall due to fluctuations in market conditions. These shares are highly volatile in nature.

Invest in bonds

Bonds are a means of earning regular income. These are less volatile in nature as compared to stocks. Bonds are issued by government and municipalities who need money to finance their projects or expenditures. The bonds are given to the investors for a definite period of time. On purchasing a bond, you will get the interest at regular intervals of time.

The invested amount will be given back to you after the completion of the maturity period. The major types of bonds are government bonds, municipal bonds and corporate bonds. The price of the bond varies due to three factors- interest rate, inflation and financial performance of the issuer. Bond dealers are involved in bond trading and it can be done from anywhere.

Invest in gold

Investing in gold is a good investment option. Investment in gold is most beneficial at the time of inflation. It provides security to the investors. Gold is a liquid asset which can be converted into cash at any time. There are different ways of buying gold. You can open a brokerage account and hold gold in the form of gold ETF (exchange traded fund) or gold mutual funds.

The main advantage of buying gold in this form is that there is no risk of theft. The other option for you is to buy gold bullion or coinage and keep it in a safe deposit. You can also purchase shares of gold mining companies.

Invest in real estate

If you are thinking of investing your money in buying a property then you are on the right track. The value of property will increase in the coming years. However it is not wrong to say that its value decreases at the time of recession. But as soon as the recession period gets over, its value increase very fast. It is a source of stable income. Investment in real estate can yield high returns after a certain period of time.

Invest in mutual funds

You can invest your money in mutual funds. Here mutual fund company takes responsibility of investing your money in shares, stocks or bonds. Your money is used along with the money of other people for investment purpose. The risk factor is low in this investment. You should monitor the performance of your funds regularly and make changes if necessary.

Investors who put their money in mutual funds grab the opportunity to participate in large investments. Open-end funds, closed end funds, exchange traded funds and unit investment trusts are the 4 major types of funds. In open-end funds, if you are not interested in keeping the shares you can sell them back to the fund.

But in closed-end funds, you cannot give your shares back instead you have to find another investor who can purchase these shares from you. Both open and closed-end funds are managed by their respective investment managers. In unit investment trusts, you can sell shares in the market. These trusts do not have any investment manager.

Thus we see that there are many ways by which you can diversify your portfolio or minimize your investment risk. It is up to you to decide which way you want to go. If you invest your money in different assets wisely then you will get good returns after a certain period of time. You will not get into depression even if you lose money in one investment as you have invested money in other assets also.

You can also choose to invest your money in such a way that half of your investments carry low risk and other half of your investments carry high or moderate risk. This way you will be on a safer side. But do not think to put all your money in one investment otherwise only you will be the sufferer. You can also think of putting your money in long term investments. Here money will grow slowly but you will get good returns.

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