Sunday, September 4, 2016
5 Common Risks To Your Investment Portfolio
Investment by its nature is a gamble. You have the potential to lose every last cent you put in - and it can happen overnight. Many people understand this, yet so few make the same mistakes, and they occur time and time again. Today, we're going to look at the five most common risks to your investment portfolio. Read on to discover more - and make sure you take steps to protect your finances.
Lack of diversity
As everyone should know, wise investors always have a diverse portfolio. Without diversity, you are not spreading your risk, which can lead to utter disaster. All it takes is an industry to go under, and your shares will disappear. An organization going bust will have the same effect. And a nation’s economy could crash, leaving your currency worthless. Spread your wealth, and the damage will have limits.
Trying to time the market
Always play the long game when it comes to investing. Trying to play or time the market is almost guaranteed to end in failure - there are just too many variables at play. Sure, you might get the odd win that makes you think you are an investing genius. But look at every successful investor out there and they never take such gambles. It’s why they are successful - and you should follow suit. Plan for the long-term and you will reduce your risk by a significant amount.
Investing in areas you don‘t understand
Professional investors know where their strengths and knowledge lies. Always stick with it and never take on what you don’t understand. If you are looking at foreign currencies, make sure you know all the tips for FOREX trading going. Study the markets - and know how they work. Be careful when trading stocks, too.
Sure, you might think you know about technology - you have a branded phone and play with apps, after all. But where do all the parts in your smartphone come from? Where is the metal for the casing mined? Who develops the microchips that keep it running? And what would happen if disaster struck that tiny - but vital - company that makes the technology for the big brand?
Not accepting a hit
Good investing is all about knowing when to walk away. You will take hits, but the trick is to get out while you still can. Hanging around with your fingers crossed, hoping things will turn around? It’s just not going to work - and you could lose everything. Great investors always cut their losses early and reassess their options. Of course, they lose some money - and may even miss out on a big haul in the future. But the safety-first option always pays out better - and safer - in the long run.
While you should always walk away when you suspect trouble, you need to understand how the market works. Inexperienced investors often make knee-jerk reactions, in response to normal market fluctuations. Stocks and commodities go up and down all the time - always take your time before making a poor decision.