Risk is something inherent in investing. Some investments are so risky that the possibility of losing all of your investment is possible. The thought of losing all of one’s investment, or even just a part of it, can easily discourage some people from making an investment, which is rather unfortunate.
It’s easy to just flock to the safety of just saving your money in a bank. You could be thinking that your money is safe and even insured by a government agency in a savings account. It even earns interest, so why should you still bother to invest?
One way to see it is this: the money in your bank, aside from earning only minimal interest, is actually losing some of its value. Savings account interest rates these days earned are so small that many lag behind the inflation rate.
An example of this is the situation in the UK in June last year where depositors actually needed to find a savings account that has an interest rate of at least 3.38% to beat the inflation rate. If depositors don’t find a higher rate, the value of their money basically erodes.
Sure, you could work hard and earn more money, but if you really think about it, how long can you stay productive? A smarter way to go about protecting the value of your money is to make it work for you through investments.
Studying Your Investment Choices
As we’ve mentioned earlier, investing has inherent risks. But there are so many investment options that you can take steps to minimize these risks and still realize positive returns for your investments.
Stocks and bonds are common investment instruments that you could look into. You have others that pose smaller risks, such as blue chip stocks and government bonds.
Having a diversified portfolio has always been a recommended risk management method. It basically means putting your money in different types of investments. It’s following the age-old advice of not putting all of your eggs in one basket, so if for instance you invest in stocks, don’t invest in just one company. You could further diversify your portfolio by investing in the stocks of companies from different geographic areas to further shield you from any regional political or economic conditions that can affect the stock’s value.
Going into business is also considered an investment. You invest your time, effort, and capital to start a business and there are many possible factors that could play a role in the success or failure of your venture. There’s the regulatory risks such as the government suddenly raising taxes so that you would find it hard to make a profit or risks such as a road construction right in front of your business just a few months after you open that severely cuts foot traffic to your establishment.
Before making any investment, it’s thus essential that you first study all of the aspects of the investment. This is the part where taking a risk becomes taking a calculated risk. This is the idea that Malraux was talking about which differentiates a successful person from one who is a failure.
Funding Options For Starting Your Investment
Once you decide to invest in stocks and bonds or even start a new business, you then have to choose how to go about investing. Ideally, you should always have an emergency fund saved up in a savings account that you could tap into. This amount should be enough to sustain you for eight months at least even if you don’t have any other source of income. Keeping an emergency fund helps minimize your investment risks.
Money in excess of that emergency fund can be invested but there are other sources of funds, such as getting a personal loan, but you should think twice before taking this option since the profit that you may earn from your investment may not be high enough to cover the interest payment that you need to pay on top of these loans.
There are also business organizations that you may want to tap since there are some that offer business assistance for people like you who are interested in starting their own business. Or you could go big and seek investments from venture capitalists and angel investors.
Studying your investments well and your options should any unforeseen events happen can help you make a calculated risk when investing. Malraux emphasized this but all this planning is studying will not bring you success unless you learn how to act on it.
Ryan Del Villar works as a Content Strategist for MoneyHero. He is also a freelance online reputation management writer.