As an investor with enough experience, you probably have a working idea of how investing somehow works. You now also know that investing involves risks and that some investments may have greater risks compared to others. Beyond comprehending the essentials, the main goal you should aim for in improving your investing awareness is how to safeguard yourself from risky investments. As a vital link, therefore, in building a viable investment portfolio, study these five steps for avoiding investments which are considered very risky.
1. Evaluate the investment risks and returns.
Simply said, investing in stocks and bonds will lead to loss of your money if the prices of these funds go down. The risk is part and parcel of investing; hence, the need to assess the rate at which your portfolio will grow or decline based on the investment you make. Getting a complete picture of the future performance will help you decide the viability of investing in either stocks, bonds, or in both. It goes without saying that there is still the possibility of losing money when you do invest; however, arming yourself with the clear picture of the risks involved will aid you in managing your portfolio well.
2. Study how to evaluate investment risks.
Being an investor, you must teach yourself how to evaluate to gage investment risks. Do this by observing the percentage at which your portfolio’s value decreases. First, find out the beginning and final value of your investments and compute the difference of the two. You can then divide that difference by the beginning value of your investment to derive the percentage. Based on the final figure, you can decide the potential or lack of potential of any investment.
3. Beware of investment scams.
You probably read about the time when Wall Street urged people to invest in risky oil and gas products. And since many investors in the past had amassed wealth by investing in oil and gas, many frustrated investors in the volatile stock market chose to buy in, hoping to cash in likewise only to realize that they have been duped. The lesson is simple: Do diligent research work to avoid jumping blind into such dubious schemes.
4. Get to know other types of investment risks.
There are many dimensions to the apparently simple idea of risk. There is systematic risk (market risk) as well as unsystematic risk (company-specific risk). The first occurs when a natural disaster or cyclical recession occurs, which makes this type of risk beyond anyone’s control. Company-specific risks only affect a particular company, not the whole market. Avoid encountering this risk by having a portfolio which is diversified.
5. Build a diversified portfolio.
Inevitably, your investments will decrease in value at one time or another. If you are not up to such an unpredictable game, settle for cash savings or government bonds. That is, if you are satisfied with small benefits. Stocks and bonds can provide bigger returns although they involve greater risks in turn. Nevertheless, you can reduce the hazard of price volatility of investing in bonds and stocks by choosing an assortment of bonds and stocks to invest in. This is what diversification means. It protects your money by balancing out the risks over several investments.
It takes great patience and diligence to enhance your investment portfolio’s potential to build wealth for you. It may seem like a game of luck to you; however, by doing your share in understanding the various factors that affect your investment, you can reduce the risks and safeguard yourself from risky investments. Remember, the most valuable asset you must protect against risks is your own well-being.
Do you have some cash and you want to multiply it as much as you can? Why not, if there were a safe and effective way?
If you already have a working plan for your budgeting, debt reduction and savings, it could be time for you to look for a good investment option. According to Allan Small, DWM Securities senior investment and counselor, many individuals get overwhelmed on their first investment venture although he believes it is not really overwhelming.
Coming from an investor, that may be an expected comment; however, Small offers five tips for novice investors can benefit from:
- Do it now!It is never too early for anyone to start investing, advises Small. With your first job’s salary, you can begin to save a certain amount you can spare, say $20 each month, into an investment. A long-term investment will bring more returns for an individual, in spite of the market dips along the way. Nevertheless, if you begin investing at age 23 up to 33, a ten-year period, you gain more than if you start at 33 up to 53, a twenty-year period, since the compounding interest rates will favor the former over the latter.
- Consult with an expert.Know the alternatives open to you. Seek a trusted investment counselor at your bank or investment house to find out if it is advisable to open a tax-free savings account (TFSA) or to invest in a registered retirement savings plan (RRSP). With the well-informed knowledge about all kinds of accounts and the advantages and disadvantages of each, your decisions will have greater weight and chances of helping you attain success.
- Begin with what you understand.The simplest way to buy stocks is to choose a business that is familiar to you and one that you understand. If you are a tea or coffee drinker, buy Starbucks shares. Small adds, “To train yourself to swim in shallow waters, you may also want to buy Apple shares if you own and use an iPhone or iPad, which is a good strategy.” However, Small advises a novice investor to also consider more serious investing. If you are in your early 30s and you want to purchase a home, invest in long-term assets with that specific goal as your focus.
- Invest in various stocks.For young investors, mutual funds and exchange-traded funds can bring the needed practice and confidence into building up a diversified portfolio of their own. Mutual funds, as Small describes it, is cornucopia of investments. Anyone can assign a certain amount of money into it. On the average, a mutual fund basket may contain $500-million or $1-billion. A mutual fund manager has the responsibility to invest that bunch of money he or she deems profitable.
On the other hand, Small describes an ETF as a similar instrument with a slight difference. Much of it is not under the complete control of a manager. For instance, if you buy an ETF which follows the Toronto Stock Exchange, you actually own all of the various stocks on the Toronto Stock Exchange through that ETF.
Balancing your financial plan
Titus Maccius Plautus, a Roman comic playwright, once gave valuable advice also applicable to investors: “In all things, the middle course is the best: All things in excess bring trouble to men.” Long-term investment, likewise, requires balance. Time brings about many changes in people’s needs; what may have been useful schemes or strategies last year may no longer be so today. Experts will help us find out keep the sound and durable strategies we can use for a lifetime.
Invest in something you comprehend
For long-term investment, it is best to be aware of the matters that count. You simply cannot come in as if you are playing a game of chance in the casino. Thomas Sudyka, Jr., president of Lawson Kroeker Investment Management in Omaha, Nebraska says, “Ignorance in the business you are investing in will cause you to overlook vital information that will allow you to make meaningful and relevant decisions.”
Start investing as early as you can
Money kept on long-term basis in investments brings greater benefits than that which is kept on short-term basis. Colton Dillon of the Acoma online investment website says, “Sticking to an investment on a long-term basis gives better results and financial success to investors.” For instance, investing $1,000 from age 20 to 30 and quitting will bring greater returns than investing $1,000 yearly starting at age 30 for 35 years. At 7% annualized returns, the former will receive $168,515 at 65 against the latter’s only $147,914.
Include 401(K) match in your options
Did you know that some people miss the opportunity to use free money to build future wealth? According to the US Bureau of Labor Statistics, 30% of US employees do not avail of the employer match in their 401(K). Advises Kevin Meehan, regional president for Chicago at Wealth Management Group, “Be sure to contribute as much as you can under the employer matching contribution; or you end up leaving that free money on the table.”
Always keep a sound cash-flow management
Jesse Mackey, chief investment officer at 4Thought Financial Group at Syosset, New York, says that no other “element in investment planning and portfolio management is as essential” as cash-flow management. The key is simple but vital: Invest automatically during your working years, monthly at least. He adds that investors, who do this, while keeping eyes on how needs change through the years, will have a 90% chance of achieving their personal goals.
Keep emotions from your goals
It is never wise to treat investment potentials as if they were sports because it will lead to problems. Kenneth Hoffman, managing director and partner at High Tower’s HSW Advisors in New York City, says, “Keeping your emotions separate from your goal of owning assets will allow for better general decision-making and performance. Being more open-minded and being unfettered by emotional attachments will lead to investing in more undervalued assets.”
Shift from discretionary spending to investing
People who delay investing for years usually confuse needs with wants. Such expenses as cellphone bills, cable TV plans and various promotional offers tend to become essential and the closet-investor remains trapped in, according to Stig Nybo, president of US retirement strategy for Transamerica Solutions in San Francisco. He adds, “Investing takes discretionary income; and discretionary income requires discipline. Give up those things that have become staple in your life but unnecessary.”
Stash away investments and cash reserves in separate boxes
It is difficult to resist the temptation of using investment money at the wrong time, according to Harold Evensky, Texas Tech University professor in the practice in personal financial planning. He advises to balance the funds you will need for the coming 3 to 5 years (the average economic life cycle) between a money market account and a high-quality short-term bonds; and you will not need to lose an investment. Even in the event of a crash, you will have the cash you need.
Focus on stocks
Stocks are one the best ways to create wealth, according to Zach Shepard, vice-president for Matson Money in Phoenix. He adds that investors use stocks to allow them to fight inflation and to enhance their portfolio. In spite of the market’s underperformance in the 60’s and 70’s, Standard and Poor’s 500 index has averaged a return of 7.5% on 20-year periods since 1926.
Diversify to prepare for the rough times
Many sad stories are told about investors who stuck to only one stock or asset, according to Jimmy Lee, Wealth Consulting Group’s founder and CEO in Las Vegas. He adds that diversifying over various types of stocks as well as within classes of assets is the best investment strategy. He gives as a good example equities which come in different types in terms of market capitalization, foreign or US or growth vis-à-vis value. In a declining market, diversification may not assure one of growth or loss protection; but it provides a smoother journey for investors.
Adjust when necessary but never panic
In general, portfolios requires small adjustments over time rather than complete reworking, which most investors resort to when the market slumps. Dave Rowan, founder and president of Rowan Financial LLC in Bethlehem, Pennsylvania, describes investing as a sustained endeavor and not a game in sports which require adjustments every single moment. Rather than timing the market and acting wildly, make small and seldom tweaks only when necessary.
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The road map to financial success
Investment planning is a continually changing undertaking; hence, an innovative approach is necessary, one which provides flexibility and room for maneuvering according to a client’s portfolio, current or in the future. This is essential in bringing back our clients’ financial security on-stream.
Wealth Strategy Analysis is a vital resource tool that we at Hawkfield Consultants provide our premium customers. This resource analyzes a plethora of possible scenarios in a client’s portfolio to project the influence of changing attributes, including taxation and cash-flow dynamics. It provides exceptionally precise indications, proven against real-time conditions so we can ascertain controlled results and accurately predict prospective effects.
This allows us to simulate the possible bigger picture in order to derive a realistic insight into the minutest aspects affecting an individual client’s requirements. Having a clear perspective of potential results of a decision renders us a greater advantage over other investment firms which deliver only historical evaluation investment products. Our future-looking approach and tested foresight help our clients and their personal Investment Councilors attain particular goals spot on.
Our Wealth Strategy Analysis is merely one among several resources we include in the total planning approach for our customers at Hawkfield Consultants. Other important tools at the disposal of our Investment Counselors include the following:
- We provide our clients a clear perspective of their investments in one concise document
- We possess the flexibility to simulate specific factors in the market dynamics to give you a view of your assets’ performance
- We make proper asset selections based on your personal goals and your capability
- You can retain or release certain stock positions based on our exert advice and financial tools
- You receive regular reports and evaluations to update yourself on your portfolio’s maximum potential, according to your requirements and goals
Making your financial dreams a concrete reality
For us to come up with a detailed approach, we always consider the quality of investment ideas that will have the highest potential to become productive. Hawkfield Consultants specializes on this kind of study and research. Our committed group of Wealth Planning Advisors will collaborate with your Personal Investment Councilor to assess and develop a customized plan to satisfy your unique needs.
First of all, your present financial status is evaluated and all pertinent factors and obstacles are closely considered. This provides our analysts a complete picture of your financial health and how they can administer your assets using a workable plan, ensuring you maximum safety while still enhancing your investments through an optimized rate and achieve your expectations when you need them.
As the process proceeds, you can evaluate the progress and provide feedback on possible options you currently have directly with your Personal Investment Councilor & Wealth Planning Advisor.
This proven exclusive approach can address your needs and goals continually, turning your dreams into palpable financial realities.