Investment is risky. No one makes an investment with the intention of losing money but the potential is always there. Many of the potential investment risks are avoidable if you are aware of them and take the proper precautions. You need to familiarize yourself with the investments that you are making and how much risk they involve. In most cases, the higher the rate of return, the greater the risk. The money you make is the reward for being willing to take the risk. Here are the top 5 investment risks and how to avoid them. 

Market Risk

The market can be very volatile. It has big swings up and down and that will affect how much some of your investments are worth. Investing in the stock market is a long term investment. You have to be willing to take some losses knowing that the market will rebound. 

Political Risk

When you have a diversified investment portfolio, some of those investments may be in foreign companies or foreign currencies. Any political upheaval can have a very negative effect on your investment. Obviously, you have little control over the political situation in other parts of the world but by making sure that your investments are not concentrated in one particular part of the world, for example, Europe or Asia you can minimize your foreign investment risks.  

Liquidity Risk

Some investments are easier to sell than others. Some have a penalty for selling early. If you want to be able to buy and sell easily, talk to your financial adviser about what products are the best for your needs. 

Real Estate Risk

Investing in real estate has always been a popular way to add a new source of income to your financial picture. You can purchase a building to flip or to own over the long term as a rental. Flipping can be risky if there are major expenses or if the housing market in the area takes a hit but it is rentals where most real estate investment risks happen. Having tenants who damage your property and cause major damage or who need to be evicted can result in a major loss of income from your investment. The best way to avoid this is to be very picky with your tenants, have an ironclad lease, and require large deposits. 

Concentration Risk

Never put all your investments in just one stock. Having a diversified investment portfolio is the best way to avoid the risk of major losses. Asset allocation is a good way to be sure then when some of your investments are down, others will be up. You can have some losers while others are winners at any given time. 

Investment should be part of your overall financial planning and talking to our knowledgeable financial planning team can help you to protect yourself from making risky investment and help guarantee that you have a financially secure future. At Chandler and Knowles we make your financial future our business.

Related Posts:

• Effective Risk Management Strategies
• Risk Management for Small Businesses
• 3 ways Real Estate Investors Can Maximize Their Risk