“Who does not risk, he does not win” this phrase was created by D. Geider. And before starting something new, you should evaluate the potential risks, especially if they relate to the possible loss of money. In investments, it is sometimes difficult to calculate the degree of risk impact, since there are usually several unknowns in this formula. But turning to the fundamental analysis, the history and prospects of the development of the asset, you can roughly foresee a possible danger.
Investment risk is essentially the probability of losing money from a deposit or not receiving income on it.
- Objects of risk.
Classification should start with the one whose influence can lead to adverse consequences in investments:
- The investor himself.
- Directly an asset or instrument, or a third party influencing the asset.
- External factors that are indirectly related to the object of investment.
The investor’s risks are approximately similar and may be related to:
- Loss of ability to work or income. (possible illnesses, urgent relocation, layoffs, bankruptcy, etc.)
- Extraordinary events, after which it will be necessary to withdraw funds from investments. (fires, accidents and others)
- Events that are more profitable ahead of the contribution itself. (for example, they offered a job in another country, while the purchased apartment became irrelevant)
Risk options related to assets:
- Significant fluctuations in the national currency to which the instrument was linked. (denomination, devaluation)
- A drop in the value of the asset in comparison with the purchase price. (stocks, bonds and other central banks)
- Bankruptcy and liquidation of the company that issued the securities.
- Broken deadlines for obligations. (for example, the acquired property was surrendered by the developer with a significant delay)
There are also many sources of external factors of influence: world crises, wars, natural disasters, geopolitical events, and so on.
It is also important to understand that unforeseen circumstances can be absolutely unique for each individual investor.
Protection against risks
It is quite difficult to foresee the probability of risk occurrence, but it is possible to take measures in advance to minimize the losses of its occurrence. So, insurance companies offer to insure against various events: loss of life or health, property losses and even loss of income. There are even insurance programs that allow you to accumulate funds, regardless of the occurrence of external factors.
A frequent recommendation to investors is not to invest the last funds, to work only with free money. Therefore, in order to minimize the risk of their loss, it is better to have a so-called airbag.
As for the instruments themselves, the risks are minimized if the investor fills his portfolio with various assets. So it is worth buying shares of several promising companies, in case of a drawdown of one of them, others can keep the indicators. If you work with a currency, then you should choose several economically successful countries. And in general, it is better to collect an investment portfolio from various fields of activity: real estate, stocks, drag metals, etc.
On a larger scale, it is possible to invest in assets of different states. At the same time, it is important to ensure stable availability of all invested funds.
The combined methodology of working with risks will help you get closer to the goal, according to your own strategy. Such actions will add confidence to the market participant and help not to turn off the path. But additional insurance and working with risks entails certain costs, which, ideally, it is better to put into the strategy.
There is also a universal method of dealing with risk-to agree and accept it, since it simply will not work to avoid everything. And the more resources are invested in the fight against risks, the less profit will be.
Having taken the first step and identified possible risks in your field of investment, then it is worth calculating the probability of their occurrence and the degree of influence specifically on you. This contributes to the final decision: accept or defend.
For example, in difficult current economic conditions, there is a high risk of loss of earnings or a decrease in its level. If there are debt obligations, it is better to make a decision to protect yourself from risk and direct funds to the formation of an airbag or insurance. There are also risks of suspension of debt servicing by the state (OFZ), which are also better provided for.
Save or multiply
Having knowledge of risk management, it is not difficult to manage investment tools. At the same time, the processes should proceed in parallel: investing and working with risks. Complete security is unlikely to bring any income.