Investing can never be separated from name risk. In general, investment risk is the deviation from the expected return. Many people think that risks are something negative, a threat, and should be avoided. Investment returns are much more profitable when risk is managed.
The existence of investment risks is often the cause of investor withdrawal. However, some employ a range of strategies to measure investment risk and minimize losses. what are some of them?
Diversify your portfolio when investing
Diversification is often one of the recommendations of experts or very experienced investors, aimed at other investors, especially inexperienced investors. It is no coincidence that diversification appears as a recommendation. Diversification is an investment strategy and a very powerful weapon to maximize profits.
Don’t squander all the resources you have on just one instrument. As an investor, you need to be able to measure and limit your exposure to certain types of investments. This is known as portfolio diversification. You do this by dividing the funds you have into different types of investments.
For example, you might combine stocks, fixed income, and mixes in a mutual fund investment portfolio. All three can be stored for different lengths of time. In addition, stock funds can also be divided into different types such as High-end equity funds or medium/small board mutual funds.
There are some tips you can try. First, adjust the stock in the portfolio so that there are not too many. As many as 3-5 companies are enough. Then take stocks from different sectors. You also need to save more money at better companies.
Start investing with small funds
You will never get rich if you don’t invest in any way. Technically, even lottery winners invest their money (by buying tickets) before they become millionaires (by luck). Because they want to make big profits, quite a few people put large amounts of money into certain investment vehicles. The experience of investing is not much. This is a big mistake as the risks involved are also high.
Instead, start investing in small amounts. Understand the instrumented bit by bit and know the best strategy to deal with the risks. It is not enough to learn from other people or books. You have to jump in there. When investing, your own experience may differ from the experience of others.
Decide on a long-term investment
A long-term investment is an investment for a long time, ie for many years. Some people make long-term investments as savings for the future or retirement. In general, investments have financial implications, especially when it comes to physical investments. For example, investments in gold, diamonds, land, buildings (real estate), or other marketable commodities. Some of these types of investments will surely form the market value. The market value serves as an indicator for determining the fair value.
Another strategy for measuring investment risk is to determine the investment period. In general, there are three types of investments depending on the period, namely long-term, medium-term and short-term. Long-term investments are synonymous with small profits. However, the risk is also lower than with other forms of investment. In addition to the period, the purchase must be made gradually. It deals with support and resistance points.
Conduct an in-depth analysis
Before you decide to invest in any investment vehicle, you must first know the vehicle. In addition, you also need to do an in-depth analysis of the sectors you want to choose. It’s not about just looking at or reading the terms of each instrument and then being sure that Investment A can make a big profit. But you, as an inexperienced investor, need to analyze the feasibility of the investment by calculating it. Analysis as a reference basis for decisions to accept or reject the investment. The analysis is carried out to avoid the occurrence of investments in projects or activities that are not profitable.
This is especially important when investing in stocks. There is a corporate sector that determines the issuer of stocks. The development of the share price is influenced by the state of the company. Therefore, an investor needs to have a thorough grasp of the latest news. If the company offering the stock is in good shape, the stock price will usually increase.
Use the cut-loss strategy
The cut-loss strategy is to sell the losing stock at a specific price. To be on the safe side, a cut loss can be made if the share price falls by more than five percent. The funds you get from selling these stocks can be transferred to other companies that are on the rise. Again, to determine this, you need experience and experience in the investment world.
Use unnecessary money at certain times
Investments, especially high-risk ones, are unpredictable. The trend can go up, but it can also go down immediately. Therefore, you cannot expect a definitive return. To avoid trouble, do not use money that turns out to be necessary at any given time. Instead, set aside mutual funds from income with a specific allocation. This allows you to control your investment risk without impacting your monthly budget.
So the investment risk is unavoidable. Every investor must be able to assess these risks well and control them with the best strategy. Undoubtedly, investment returns will be more profitable. So are you ready to start investing now?