Business and financial investment are intrinsically bound together. No business can succeed without some kind of investment, whether it is from within the company or from outside. The fact that you have to spend money to make money is one of the most basic principles of business, but so is the concept of risk management.
When it comes to making your own investments as a businessperson, you’ll want to apply the knowledge, skills and experience that you’ve acquired to playing the market. Done correctly, investments are an excellent strategic way of generating a substantial extra income. There are however, always risks, which must be understood and accepted. At the same time, any good investor will know how to minimise these risks while still allowing for opportunities to arise.
Choose your risk level
Obviously, the easiest way to manage risk is by avoiding it. There are safe investments out there that offer a more or less guaranteed return. The downside is that the return will be relatively small. A low-risk investment will accumulate slowly but steadily, and if it loses value, the loss will be fairly minimal. A high-risk investment can potentially increase in value dramatically but can just as easily drop by the same amount, or worse. It’s important to choose the level of risk that you’re most comfortable with.
Learn about trading
You’ll be more confident taking on risks if you know what you’re doing. One of the first decisions that you need to make is choosing which market you are going to invest in. The Foreign Exchange (Forex) market is a popular choice, as it is active 24 hours a day, and if you learn Forex trading, then the risks are relatively minimal. As different currencies are traded against each other, it’s possible to make money whether the market is going up or down.
Diversify your assets
The golden rule of investing is “don’t put all of your eggs in one basket.” This means using asset allocation to create a diverse portfolio. Make sure that you have stocks in multiple companies and also in multiple industries in order to guard against specific economic downturns. If one set of stocks loses value, then others will hopefully stay buoyant to compensate. Of course, investing is never risk-free, and a general recession or economic shock could still devalue investments across the board. Nevertheless, diversification is an essential investment strategy.
Do your research
If you’re managing your own investments, then it’s essential to keep up with world events. Geo-political and economic affairs will impact on the value of your shares. You should also thoroughly research any company that you’re thinking of investing in, and keep up-to-date with their day-to-day activities once you are a shareholder. In terms of your overall investments, the websites of The Financial Times, The Wall Street Journal and other respected institutions not only have the latest news but also offer valuable analysis and insight into the market as a whole.
Reducing risk is actually about managing risk. There will always be an element of risk to investing, as it is risk that establishes the level of return. A low-risk investment is not always a good investment. Nevertheless, understanding and controlling the risk is the way to make the market work for you.