Investing can be a great financial strategy, but only if risks are managed appropriately.
When investing, it is important to understand three aspects surrounding risk; what it is, why it’s important, and how it can be used to your advantage.
Investment risk involves understanding that any investment strategy you use may result in you losing some of the original amount you chose to invest. When choosing where to invest your money, if you choose to invest with greater risk, that is more chance of losing your money, if there is a positive result, you will make more off your money generating a greater return.
If you invest where there is no risk, you are not going to make money off of your investment. This is why investment risk is so important. You need to weigh up what the best way to use risk when investing to suit your portfolio and your financial desires.
There are a number of ways you can use risk in your investment strategy to strengthen your portfolio and increase your possible returns. You may also want to minimise your investment risk; it just depends what you are investing for and what your end goal is. Ways to manage investment risk include diversification, monitoring, and advising a financial professional.
Diversification involves investing in a number of different industries with varied levels of risk. By investing if different industries, you are protecting yourself should one area of your portfolio perform poorly. Monitoring involves keeping a close eye on how different aspects of your portfolio are performing, so that you can make appropriate adjustments should specifics areas be over or under-performing.