The Risks of Investing and the Thoughtful Investor
With zero risk, are we still investing?
Whether you open your Instagram, Facebook, or YouTube, there are almost uncountable content about the:
- Best stocks to invest now!
- How I made XXX amount of money trading stocks in 21 days!
- How I became a millionaire in one year by investing (almost anyone can claim this, as if we need governments to implement net worth certification)
- Invest in the hottest NFT now!
- Don’t lose money, invest in this XXX cryptocurrency now! Click my link below.
This is not to smear the image of those worthy people who truthfully worked long hours to be able to state or share their experiences on social media. They have the right. Their insights and experiences are valuable. Nevertheless, what worked for them may not work for you.
I have seen a comment on Quora asking for advice from some experts. He followed what some YouTubers stated in their video, but he soon lost his investment capital and got into debt.
Even if the YouTubers are truthful in their testimonies and statements, we have to remember that actions in the market will trigger different results. It’s like trading in FOREX and your money is gone in hours because of the tremendous volatility in the market.
This is also applicable to the best strategies implemented by some individuals and wrote books about these. Once a big chunk of the population does the same strategy, the consequence will vary for good or for worst.
We wonder why there are so many negative reviews on those books, but those could be people who tried the strategies when these were already widely utilized or exploited.
Our world is more connected than ever. Thanks to this, we and the whole population can participate in information sharing without so many barriers.
You can be in the North or South Pole, witnessing the penguins and polar bears taking snapshots to post on Instagram, or dancing in frenzy to upload for YouTube Shorts. They would love to take part in those monetary benefits of the internet. Maybe they would love to invest in Bitcoin, too.
It is as if normal to have information overload as your eyes continuously blink, praying to some divine creature to just choose the best and practical investing strategies for you. Don’t worry, though, the restless algorithms will grant your wish.
It is better to decide and act based on your current investing state and needs. The presence of a trusted professional can also help as you stay prudent and informed about market changes.
Anyone who has the means can now download apps and start investing with just a transfer of funds, a demo version, and a willingness to jump to the real world of investing.
All of us dwell with profit in mind in different ways and forms. This is similar in investing, but not all are ready to pay the price of long market studies and learning the ins and outs of the trade. If only it’s in a storage that can be plugged to the brain to make anyone an investing genius in a minute, most of us would beg for the experience.
What happens in investing is like in actual life. The higher the risks you are willing to take, the higher the rewards. In reality, with all the work over our shoulders, few would aim for extreme uncertainties.
There are two major divisions of investing risks. These are systematic and unsystematic risk. Systematic Risks consist of those that happen in worldwide markets that even an organization or a government can’t easily control with portfolio diversification. Unsystematic Risks cover those that are specific to a certain sector, a stock, or a business industry that can be minimized by managing a portfolio effectively.
Let us check on some examples of these two.
Systematic Risks examples:
- Market Risk:
*Interest Rate Risk
*Exchange Rate Risk
- Inflation Risk or Purchasing Power Risk
- Credit or Default Risk
Unsystematic Risks examples:
Political Risk
- Business Risk
- Liquidity Risk
- Specific or Concentration Risk
Plus:
- Mortality Risk
- Incompetence of investment adviser, manager, etc.
These are all small in words, but just managing one of the risks would require analysis and complex computations that would need long, focused hours.
You might be thinking about how to minimize the impacts of these risks on you.
No number one solution can solve all. Handling and dealing with investment risks will require the combined use of data, assumptions, analysis, and implementation.
We can’t also ignore the costs and losses you will experience along the way. Each of us has different expertise, and some individuals have sharpened their skills through time and experience.
These are the people we have to approach when dealing with these risks, including lawyers, accountants, financial managers or advisers, investment experts, brokers, and bankers.
Depending on your situation, you may be able to handle the ups and downs of investing.
The most important that you have to remember when investing is that you can profit handsomely or meagerly, lose all of your investments, or be buried in debt since your losses are higher.
Here are some points that can be useful in restricting exposure to investment risks:
1. Readiness
This will include your knowledge about investing, the state of your income sources, your net worth, and the amount of money you’re willing to risk. If you want zero losses like using savings accounts and time deposits, these may not be handy with the continuous increase in prices and sometimes hyperinflations.
2. Diversification
Diversifying your investments doesn’t mean putting your money in the stocks of A, B, and C companies. It means you combine real estate, stocks, mutual funds, ETFs, and more. In addition, putting money in different sectors can add to the mitigation of uncertainties.
3. Willingness to learn through others and experience
Investment is like a tree that could be nourished or withered by many circumstances. If you are the nurturer, you have the responsibility to aim for a favorable outcome, despite all the storms and earthquakes along the way.
As many motivational speakers have said, it is easy to complain and criticize those in the game while we stay on the sidelines. If you really want to know what happens in the game, join it, as well as feel the pains and bliss in the process.
These are not statements to force you into investing or gambling your money on the spot. You are the only one who can decide if you are prepared with suitable knowledge and equipped with the right tools to proceed.
We are all experiencing battles in our lives. You have your own, and so the decision is yours. You can also share your experience in the comments section.
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