Most of us invest our money in various markets to earn a good amount of profit and investment are becoming quite common over the period of time.
Every investment plan serves different purpose such as retirement plan, growth plan, monthly income plan or child education etc. There are wide ranges of investment plans are usually available in the market which you can choose as per your investment goals.
However, most of us know about the investment plans but at the same time there are various risks associated with every investment which you should keep in mind before investing your money.
While some investment plans are very minimum or least risk, but some plans are highly risky, so one should pick a plan according to his/her risk tolerance.
There are various other risks are associated with every investment, so today we will explain about those risks and their possible solutions.
Portfolio diversification is one of the best techniques to minimize risk factors, and it provides you high probability to earn more profits.
Let’s assume by an example’ if you invest your money in debt instruments than surely your money is safe, and you will get guaranteed returns, however returns margin will be very little as compare to other investment options.
If you invest your money alone in equity than there are chances you will earn large amount of profit as compare to debt market but at the same time equity investments are volatile, so maybe you end up having loss too.
Now portfolio diversification can be the best answer to this situation, in a diversified portfolio you can invest some portion of your money in debt instruments and the remaining portion of money can be invested in reputable or blue-chip stock.
In this scenario debt instrument assures you guaranteed profit and your equity investment can much higher profit. Diversified portfolio reduces the risk and increases the chances of profit.
Do research before investment
Before doing any investment it is important to do analysis and research. Your research can be very helpful for you to minimize the risk.
For example, if you are planning to invest your money in particular stock than you must check fundamentals of a company which includes annual profit, growth history, market cap and major news or events.
These stats help you to figure out the stock you have chosen belong to a good company or not. If a company has good fundaments than you should invest in it or if a company has bad fundamental record than you must avoid it.
Pretty much the same goes for mutual fund investment, you much check record of the mutual fund that it could reach its yearly targets or not. If a mutual fund is hitting it target continuously from 5 or more years than you can invest your money it in.
Monitor your portfolio
Monitoring your portfolio is vital to protect your investment. Keeping a close eye on your portfolio and market updates constantly provides you information about markets.
When you have updates about markets it gives you an idea about the future of a particular stock or mutual fund, markets updates and major events usually impact your portfolio.
If you regularly monitor your portfolio than you have better chance to protect your investments in case of any negative market trend.
You can simply switch to other mutual funds or come out of particular stock on the right to avoid any major loss.
If you do not monitor your portfolio on regular basis than you have very fewer chances to evade loss in a major market event.
Unpredictability and liquidity can be a major are factors in equity and equity based mutual funds.
If you invest your money in blue-chip stocks or blue chip mutual funds than you always have an idea about the future of your investment.
Blue-chip companies always have good track record related to growth, however in non-blue-chip stocks and mutual funds are much more risky.
Blue-chip stocks are highly liquid which means you can enter or exit anytime from your investment because there is no shortage of buyer and sellers in blue-chip stocks, while liquidity can be a major concern in non-blue chip investments.
Credit rating is another important factor in mutual fund investments you must check credit ratings of mutual funds before putting your money. You should choose mutual funds with best credit ratings.
Business risk is one of the major risk which you should keep in mind before doing any investment. It can understand with simple example, let’s assume if something bad happen to a particular company like a scam in company, decline of growth due to change of leadership, wrong policies of company any other major dispute within the leadership of the company.
All these factors can affect your investment, so it is important to check record of the company if a company has scammed free record and great leadership to lead the company then surely you can put your money in that company.
When you are buying stocks or mutual funds through a broker house or firmer than you should also check the record of broker firm, firm’s management of portfolio and firm must pay back fund money quickly on exit. The Broker firm must have to be scam free.
Equity and mutual funds are subjected to market risks, however some investments are the least risky while others have high risks. Do your basic research before putting you in any investment, if you are a conservative investor than you should invest your money in instruments with the least risk. You must keep the factors in mind which we have mentioned above.