Investment Tips to Reduce your Risk
When it comes to investing one of the best ways to make sure that you end up with a solid portfolio that, year after year, increases in value, is to simply keep your risk as low as possible. If that seems very simplistic it is but, in order to do it, we’ve put together a number of tips that are also quite simple to put into effect and follow. Enjoy.
- Invest at least some money in stocks in order to keep up with inflation. Long-term financial goals are often decimated by inflation and, since it’s historically about 3%, if you have your money in a regular bank account or certificate of deposit, you’re actually losing money. On the other hand, by investing at least some money into the stock market you’ll keep up with inflation as, even though stocks are risky, they have consistently outpaced inflation with their returns since at least the 1940s.
- Diversifying your investments should definitely be on your ‘to do’ list of investment tasks. While stocks can significantly increase your investment returns, if you invest only in stocks and the stock market takes a huge dive you’re going to be in big financial trouble. By owning a broad range of different types of investments like real estate, commodities, stocks and other funds, you spread your risk out among these multiple investments and, in most cases, lower your risk considerably. While one of your investments might tank, it’s highly unlikely that all of them will.
- Keep in mind that meeting your long-term financial goals requires at least some amount of risk taking. Interestingly, a recent Money Magazine article showed that the number of people under 35 who are willing to risk their money on the stock market is actually declining. While this might seem like good news (and in general it is) the fact is that taking some financial risks is important if you also want to have the type of financial gains that will set you up well for your later years and your retirement.
- Never forget that time is your friend when you are younger and your enemy when you are older. This not only applies to your actual life and health but also to the fact that time, plus compound interest, can significantly increase your investments. The more time that you have them, in general, the more likely that your investments will increase substantially. Basically, the more you wait to start investing, the more growth that you’re going to miss and the less money you’re going to have in the end. No matter who you are, compound interest is definitely your friend.
- Not investing is almost as risky as investing. Inflation, which we mentioned above, can sometimes get completely out of hand and may do so again in the future. If that happens, investing in the stock market may simply be the only way that you have to be able to accumulate the kind of money that you need to last you through your retirement. People are living longer and social security is being decimated, leaving stocks as one of the few things that may actually pay off in the end.
- Start small. When you are new to investing it makes a lot of sense to start small and, as you gain confidence, increase your investments. One of the ways to do this is simply to do your research and choose investments that, over the last 5 years (or longer), have performed well. If you do this and by small amounts on a continual basis you will not only keep your risk low but your chance of ending up a winner much higher. Need help picking the right investments? Talk to the benefits administrator at your work, consult with a broker that you trust or read investing magazines like Kiplinger’s and Money.
- Don’t overanalyze or overthink your investments. Many people make the mistake of keeping such intense track of their investments that they end up making mistakes due to their obsession. Simply put, what your investments do on a day-to-day basis is almost irrelevant as opposed to what’s going to happen to your investments, and the wealth that they can build, over a longer period of time. Better to monitor your investments on a monthly or even a quarterly basis to make sure that they’re performing well and keep in mind that, what they’ll be worth in 10, 20 or even 30 years from now, is what really matters. While there will certainly be some years when you have temporary setbacks, what you’re looking for is a growth trend and, if you see one, you should be just fine.
Hopefully these investing tips have opened your eyes to the reality of the stock market, investing in general and maybe even the good and bad habits that you already have. If you have any questions about investing or would like some advice about any financial issue, please let us know and we’ll be sure to get back to you ASAP.
Filed under: Investing
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