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Here are the Risks and Strategies to be Aware of Before Investing Money

Feb 19, 2021

Hands-on in your business venture and ready to do everything that you think will pay handsome dividends? Before you expend all your energies and lose a big chunk of your financial investment from wanting to cover everything all at once, you may want to take a little step back.

Alongside knowing the importance of investing and figuring out, “What should I invest in” plus other investments info such as returns, smart business operators need to probably relearn some basic investment facts. These primarily include spotting and mitigating risks. By doing so, they can be well-prepared for the most exciting ride or journey in their lives.

There will be times when a business mirrors the economy’s slow pace, or it may go with the socio-economic uptrend. Seasoned business operators are able to adapt to changing business cycles, spot red flags or things that are bad for business early on. In contrast, ambitious but inexperienced business owners may overly focus on a grandiose vision of a trouble-free future that they think their financial investments ensure.

The Go-Getting Young Investors

A recent Asian Development Bank working paper that examined factors influencing retail investors to invest in a P2P lending platform in Malaysia revealed interesting things. It cited that young investors form a huge chunk of those who have been attracted to invest in the online market ecosystem. They are drawn by investment vehicles offering flexibility,  value for money, improved access to investments info, and lower cost of transaction.

In the US and other parts of the world, it can be noted that millennials certainly make up a huge chunk of people driving the economy – these are the people who are constantly showing how innovation and business pursuits can pay off. These young retail investors, working with small capital outlays, who believe that business innovation improves society, have caused the dynamics in business to undergo major shift.

Many of them have fearlessly jumped into the entrepreneurial scene, learning the ropes of investing money and mitigating risks along the way. Twenty-something Jairah, a go-getting Filipina, is a clear-cut illustration of todays young and determined trailblazers. She has invested on bitcoins, retailing of fragrances, home-cooked meals, and other ventures that exhibit a small risk of loss in an investment. She singles out stocks and insurance, though, among the investments she may risk money for.

Alec, an IT graduate, is another young Filipino investor who gives good advice, like where to put your money before the market crashes (read: huge losses from market dips constitute the main risk in stock investing). An active investor who has learned at an early age the different ways to invest in stocks,  Alec epitomizes the investor who manifests that the best way to invest in stocks is to be updated on where the blue-chip companies are investing money.

In the Philippine scene, he considers renewable energy, telco, infrastructure + fintech among the best high risk stocks right now. Both young and mature stock market investors are well aware that if an investment is considered “volatile,” it means that the market can fall or push higher. Oftentimes, the market changes when news such as a spike in Covid-19 cases comes out.

The Importance of Risk Management

Jairah, Alec, and lots of other young people like them across southeast Asia, US, Europe and other parts of the world, have learned the ins and outs of investing money first-hand. While some of their peers and their older counterparts take ages figuring out answers to the question, which form of investment has the most amount of risk involved? – they have already reaped sweet financial gains.

Yes, future investments can lead to extraordinary achievements with proper risk management, along with smart tools and techniques. Note that when you make an investment decision, you are in effect taking the opportunity to be a creative innovator and grandmaster of your own business game.

To optimize, rather than squander, your resources, it still helps a great deal to learn the tricks of the trade, or glean insights from hardworking and disciplined business owners who leaped from startup entrepreneurs to big-time magnates. Getting investments help from real-life successes, as well as from startup failures, help sort out investor characteristics that are most effective, and which ones are not.

Time and again, individuals with funds to spare who have gained exposure to the world of investing may offer advice like spreading out your investments to reduce risk.  Indeed, there is nothing quite like learning some of the investing philosophies and practices of successful people, and using sound risk management. Big words? For people in the world of investing, risks and good performance are often joined at the hip. They usually interlock.

To some extent, risks can be useful and can contribute to a desirable performance. In certain instances, the greater the risk the greater the reward, and stock market investing has constantly shown this.

Strategies to Help Reduce Investment Risk

Investors may mull over the question how are volatility and risk related in an investment. While it is good to start investing at an early age, it remains crucial to exercise foresight and caution Two of the strategies to help reduce investment risk are:

  • Reviewing your asset allocation and diversification strategies to ensure return on investment and risk & reward levels align with your long-term investment goals
  • Dollar-cost averaging to help smoothen out the effect of market volatility over time

Reading voraciously to get a pulse of the market also helps. In the book, “A Dozen Lessons for Entrepreneurs” by Microsoft executive Tren Griffin, some risks and pitfalls that startup business owners usually encounter were cited.

The book noted that a lot of startup enterprises fold up due to ‘indigestion’ rather than ‘starvation,’ meaning losing focus and diverting resources unnecessarily, or premature scaling, were the things that derailed success. The book also cited that great business founders and teams often thrive if they have a lean yet diverse team with a mix of skills. “Having a diverse team lowers the risk of groupthink,” as well as the risk of wasting funds.

Lots of other strategies for investment, including ways to reduce investment risk, can be found in self-help or business books like this. Overall, venturing into your own business (the riskiest investment) or investing money (whether in crypto, stocks, or a P2P lending platform) starts with taking a long hard look at your situation, and then assessing the targeted returns.

Take a long, honest look at yourself – including your investing finances. Reassess your financial health and see if you are cut out for the grueling days, the investment risks and challenges up ahead. Just like a golfer who must find his own style of putting, a business-minded individual or entity must know which investment vehicle is the right fit, what are the investment risk levels, and what synchronized motions must be done to keep the business humming nicely.

Interestingly, some of the most successful business owners have developed the habit of saving at an early age. Having enough capital makes sound business sense, though it need not end there.

Consider investing your extra cash or earnings in options that give you some control, and yield higher returns than traditional financial investments or vehicles. It may be high time you stop sitting on the sidelines or holding off on investing. Make a sound investment decision now, with help from one of the leading peer-to-peer platforms in the Philippines today – Blend.ph.