By Bizna Brand Analyst
Have you ever heard of the saying “No pain no gain”. It is a very simple and factual saying, and when it comes to the business terrain it means a lot more. For me, when it comes to the business world the simple saying “No pain no gain” means that you cannot obtain wealth (thus invest) without taking risks, therefore it means the bigger your investment, the bigger your risk and that leads us to the topic for discussion in this article; Four ways to reduce your investment risks?
What is investment risk?
Investment risks are simply the risks associated with an investment. In every investment there are three main associated risks, they include;
1.The possibility of your investment yielding lower returns than otherwise expected.
2. The possibility of your investment yielding no returns at all and
3. The possibility of losing your entire principal investment.
Usually, among the three types of investment risks, the first one is most often than not a common and widely accepted investment risk, as you tend to retrieve your principal investment and you are as well able to make some returns on your investment even though the returns may be lower than expected.
The second type of investment risk, which is also common when it comes to investments, is not usually accepted by investors as they at least expect to get some returns on their investment. This type of investment risk at least leaves the investor with his principal investment or at break even.
The last of the three types of investment risks which is the risk of losing your principal investment is very catastrophic when it comes to investments as the value of your investment (or money) depreciates significantly leaving you with next to nothing.
As an investor or potential investor, it is always advisable to take calculated risks when it comes to investments.
How to reduce investment risk?
To reiterate, one thing you should know as an investor or potential investor when it comes to investment is the simple rule of thumb “No pain no gain” which simply means that you cannot achieve any wealth without taking risks. However, you need to know that taking risks doesn’t necessitate or guarantee wealth or success hence the need to take calculated risks. Below are some ways to reduce investment risks.
(1) Do enough research: Most successful companies or entrepreneurs did not just become successful because they took risk when investing; however, they did so by taking calculated risks. One way to reduce investment risk is to invest some resources in research. Yes as an investor you need to do a feasibility studies on the type of business you want to invest in before actually investing in it, thus if your research results are positive enough.
(2) Draw up a business plan: Having a business plan as an investor would help you to reduce investment risk as a business plan guides you on what steps you should take during the investment process. You should consider seeking a professional’s help in preparing one.
(3) Invest gradually: As the saying goes “Don’t put all your eggs in one basket” In business this saying is very vital regardless of how encouraging your research results are. I suggest that you start your investment by taking it gradually one step at a time so that you reduce the risk of losing huge amounts should the investment not go according to plan.
(4) Have a back up investment plan: Having a back up investment plan when investing helps you to reduce your risk by simply relying on the back up investment when things are not going on well. So when choosing possible investment opportunities, choose the investment opportunity that allows you to easily diversify your investment resources into another investment.
