Since risk is omnipresent and hence risk factors are not only limited to investment says Paul Haarman. The only difference behind the reason for the success or failure of any firm is that few people are aware of the strategies to manage the respective risk factors, and the other few leave it up to luck.
When it comes to investing money for the betterment of the future, you can not just be successful by only focussing on the growth of your money, but you will also have to keep in mind all the risk factors that might come your way and their management. According to Paul Haarman following are the top 5 strategies that help in managing your risk profile while investing.
Diversification of investment:
Rather than investing in a single asset, it is better to diversify your investments in areas. That are not interrelated with one another. This way, even if you face some of the unfortunate situations in one area of investment. You will still have other diversified areas to gain profit from. But diversification is not that easy as it sounds because almost all asset categories are interrelated to each other. Diversifying the areas of investment can act as a good strategy for risk management. Only until the areas are not related to each other.
Rebalancing helps in reducing the risk of terrible loss by maintaining a diversified portfolio. The returns of various assets are not constant, as they keep fluctuating with time. At times rebalancing might seem unreasonable as it demands to get rid of the investments that have a good value right now and invest in assets whose significance is shrinking. But rebalancing is profitable in the long run.
The other most valuable strategy towards risk management is investing little or zero investments in areas that seem uncertain. Paul Haarman explains that this strategy has proven to be beneficial to a lot of investors since an 80% loss on a $1000 is a lot better than a 50% loss on a $30000 investment.
Business risk can be tagged as one of the scariest risks in investment. As it includes the fear that something unfortunate might come along, resulting in the loss of the investment. Numerous risk factors come along with investing in stocks, and it is no hidden truth that predicting risks is impossible. Hence, a contract that allows the buyer to sell the products. Those are at risk in bulk and at lower prices is the best possible option to avoid business risks.
Work according to your risk tolerance ability:
Every investor can withstand risk, but the extent to which one can withstand risk varies from person to person. It can depend on various factors like age, financial support, etc. Investors always rely on taking more risks than required, and this results in an obvious downfall. Hence, acknowledging your ability to tolerate risks and acting accordingly is a very crucial strategy towards risk management.
No matter what your investment strategy is, it will always have some risk factors. The focus should not be to avoid risks but to know the strategies to manage risk whenever required.