How to avoid Investment Risks?Posted by wmplainc on January 4th, 2021 Investment is the allocation of money expecting a profit. Once money has been invested, it goes through various conditions where growth is as possible as a loss. Gains/Losses from an investment are called returns. Since various factors determine the returns, risks of varying degrees are inevitable. Investment management firms help minimize investment risks. The investment risks can be of the following types. W.M.P.L.A. is a financial advisor San Fernando Valley hosts that can help investors to minimize or avoid risks. Risk Types
Market Risk If the investments are affected by changes in the overall market, the value might decrease. Thesee are the 3 types of market risks. Interest Rate Risk If the interest rates in the market increases, the value of the investment decreases. Equity Risk If the buying and selling rates of shares in the market decrease, the value drops. Currency Risk If the exchange rate in the market decreases, the value drops. Liquidity Risk Selling the investment at a lower price is a liquidity risk. Concentration Risk If money is concentrated in particular investments, there is a risk of inability to sell and end in losses. Credit Risk If the institution issuing bonds runs into financial difficulties, the credit rating of the bond reduces, which results in a reduction in value. Reinvestment Risk If reinvesting the principal at a lesser rate will result in loss. Inflation A rise in the prices of commodities over time will reduce the value of the investment. Horizon If the investment is sold off due to any unexpected events, it might result in a loss. Longevity Spending off more than what remains in Savings results in a drop in the value of the investment. Foreign Investment Risk Changing conditions in foreign countries might result in a drop in the value of foreign investments. Operational Risk Losses due to issues in the system, process, or the people involved are operational risks. Risk Management Investment Risk Management is a process through which potentials for a possible loss is analyzed, identified, and decisions are taken to prevent a potential loss. Investment Management Firms thoroughly analyze the factors and have well-defined mechanisms to eradicate risks. Some of them are, Asset Allocation Investment management firms help allocate funds in stocks, commodities, or shares after proper analysis. The performance of assets completely depends on how assets are allocated funds. Focus on Long-term Returns Investment Management Firms strategize and analyze before investment to identify long-term returns. Equities and Bonds give good returns if they are held for a long period of time. Sometimes the periods can extend to decades. Portfolio Diversification If funds are allocated in diverse portfolios, the risks of a loss can be mitigated to great extent. Effective diversification is done by a professional investment management firm. Investment Styles Investment Styles determine the returns. A financial advisor can assist in choosing the correct investment style. There are different investment styles like
A dedicated portfolio manager is designated to take care of the client's funds.
Deciding between Growth and Value before the investment.
Deciding between investing in Large or Small Companies.
Understanding where they stand in the mentioned styles will help in good returns. We at W.M.P.L.A take utmost care while advising on investment strategy to prevent risk. Our dedicated risk management team is highly experienced that can help any individual or an organization invest at reduced risk. Get a dedicated financial advisor San Fernando Valley can offer that can help you grow your assets and investments. Contact us today to invest wisely. Like it? Share it! |