Risk management strategies for investors
When it comes to investing your money, there is the possibility that it may not perform as well as expected with you losing some or all of the original investment. While no investment is free of risk, some carry more risk than others.
The higher the expected return, there is generally a greater chance of risk in the investment. These are a few strategies that can help minimise the risk of investments without sacrificing your returns, and not be left out of pocket in volatile and fluctuating markets.
Investment diversification involves buying asset classes or sectors that are not correlated. Diversified portfolios give you the advantage of being less exposed to particular economic events. It can be an effective way to limit your risk, as the fall in the value of one asset class may be offset by an increase in the value of another. You could consider investing through a managed fund or exchange traded fund (ETF), as these are some of the easiest ways to access a broad range of investments.
When buying growth investment assets, you may expect to see some short-term volatility. It would be helpful to separate your short-term and long-term goals and determine how much will be needed for each. For example, you may consider investing for the long term in growth assets, while setting aside funds for the short term in a cash investment or another similar defensive asset. This will ensure that the short term funds are available when you need them, and your long term growth investments won’t be affected by any significant falls.
Track your investments:
Good record keeping is essential to successful investment. The balance of your assets may change as they gain or lose value, reducing the diversity of your portfolio. In these circumstances, you may need to rebalance your portfolio by selling one asset type and buying more of another. Doing this will make sure your investments still align with your strategy to mitigate risk.
For further assistance with developing a financial plan or selecting financial tools that are appropriate, seeking professional financial advice is recommended for individual investors.