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Investing is the one true key to wealth, far above any career or side-hustle you might be working on. Yet, there is undeniably some risk involved with investments of all kinds.
So, how do you make sure that your money doesn’t all go down the drain because of one bad investment or two? Here, we’re going to look at ways to protect your money while you play the markets.
The single best way to ensure that you’re making a “safe” bet is to know more about what exactly you are investing in. For instance, when investing in stocks, choose the right stocks for you. Don’t get caught by the hype of a sudden craze and buy into a company.
Instead, take a closer look at company health, their debt, competition, and risks facing them. A company that looks like a huge success might be making returns, but those assets could be spent on repaying debt rather than being used for profit or growth.
Take risk into account
Whenever you place an investment on the market, ensure that you have some accounting for risk from the very beginning. Choose stockbroking platforms like CMC Markets that allow you to make conditional offers, that is offers to buy stocks if they fulfill certain criteria. Set a loss limit that allows you to pull out or automatically sell an investment if it starts losing a certain amount. Not every platform allows you to take these actions an unlimited amount of times, so be savvy about which you choose to go into business with.
Limit your volatility
If you want to play it a little safer, then make sure you’re not investing solely in the most volatile markets. Look at those that provide slower returns but more reliable growth, like bonds and stocks that pay dividends.
Diversification is risk management 101 when it comes to building an investment portfolio. It also allows you to invest more broadly in markets you know better, like real estate or business, while you learn more about other markets you can expand into in future.
Have enough savings to withstand a hit
Investing might be the best way to build your wealth, but it’s not always the best way to sustain your financial health. Look at The Balance for ideas on finding the right balance between saving and investing. What you want to ensure, however, is that you have enough of a cash buffer that you’re never put in dire straits by a bad investment or two.
Of course, you can better avoid that from the beginning by only investing as much as you can afford to lose. No investment is ever a sure thing, so don’t put all your money into your portfolio.
There is no way to mitigate the risk of investing unless you’re willing to put the time in to learn about it. Learn about different relationships in the markets, how to diversify, how to use risk management tools in good investment platforms and more. Otherwise, perhaps investing isn’t the right path for you.