How to Manage the Risk of Your Personal Investments

Investing is never going to be entirely free of risk. There are always unpredictable elements to both the markets, and the people who comprise them.

The best that any investor can hope for is to minimise this risk. Here are four simple ways of reducing your level of risk when making personal investments.

One of the simplest ways of ensuring that your investment decisions don’t come back to bite you, resulting in the direst of outcomes, is to make sure that you are only ever investing money that you can afford to lose.

By following this simple principle, you will be protecting yourself, and your assets, from the inherent unpredictability of financial markets.

Even if you are investing in a business or commodity that has a very strong showing and is considered to be a safe investment, there is always the possibility for the unthinkable to occur.

If you already have a lot of your finances tied up in investments and you cannot afford for them to go wrong, you should consider formulating a strategy for extricating yourself from some of them.

You can do this in a piecemeal fashion, cashing out a small amount at a time, or you can choose to sell your current position, assess the funds you receive from doing so, and then reinvest these in a more controlled manner.

Hedging is a financial strategy that many investors prefer to use as it is seen as being much safer. Hedging your investments means diversifying them, spreading them across a broader range of investment types.

The idea here is that, should one of your investments turn bad, it will be compensated for by another investment gaining. If you can find two investments whose values are negatively correlated, meaning that one going up will bring the other down, then hedging your investment between the two can be effective.

Of course, you need to work out how much to invest in each and remember that the negative correlation doesn’t just protect you, it will also reduce your gains somewhat. This is because when one investment performs strongly, the other will drop.

Looking online, you will find no end of investment advice available. Naturally, some of this advice is very good, and some of it not so much.

Similarly, some of the advice you find online will come from other investors like yourself, others will come from professional asset managers and financial advisors, and some of it will be ordinary people who have been commissioned to write.

All of these sources can be worthwhile, but it is always a good idea to have access to a professional service like the JCRA Group. JCRA are a financial advisory service who offer expert advice on how to best manage your investment portfolio.

It’s all too easy to get caught up in the excitement and the allure of making big returns on your investments, to the point where you begin chasing unrealistic goals.

Investing should not be like gambling, you shouldn’t be relying on the luck of the draw. Instead, carefully research and consider all your investment options before you commit to anything. If you are uncertain, make only a modest investment to begin with.

If you get carried away with investing, it’s all too easy to place yourself in a very precarious financial situation.

No one wants to have to worry about losing their home or other assets, but this is a grimly common fate for those who don’t manage their investments with the appropriate level of care and consideration. 

Sticking to the advice above will allow you to minimise the level of risk involved in your personal investments and maximise your returns.