Sunday, September 13, 2009

investment risks

With the financial crisis, most people's investments have decreased in value and a good number will get discouraged because of this. In the Philippines, we also have the collapse of several rural banks and pre-need firms. Some might decide to forego investing after all of this. Let us clarify RISK - IT IS ALWAYS PRESENT. If you keep your money as it is by hiding it under your pillow, there is the risk of theft, of your house burning or termites destroying the crisp P1000 bills. If you keep the money in a bank deposit account earning less than 4%, inflation will lessen its value year after year. Inflation is not just risk, it is a certainty. Thus, a prudent investor will not strive to avoid risk at the expense of losing to inflation, rather, he will strive to beat inflation while MINIMIZING risks. Here are some tips to protect your investment while making it grow:

1. Stay away from firms that offer unbelievable returns.
Be very wary of companies that offer unbelievably high returns. If it's too good to be true, it probably is. Don't be greedy, remember that our goal is to let our investment grow steadily.

2. Spread your investments.
Diversification is the name of the game. Do not put all your money into one investment vehicle or one particular company. Spread it out so you can be protected even if a particular investment does not work out well.

3. Invest only with reputable companies who have shown consistent performance over the years. If these companies survive the 1997 and 2008 financial crisis, they will most likely survive upcoming ones.

4. Learn all you can about the types of investments available. The internet has made it easier to acquire such knowledge. Place your hard earned money in those that you thoroughly understand. Investing is not synonymous with gambling.

5. Be proactive. Investing will involve decision making. Use your head and not your emotions. Analyze and think through your decisions. Remember that no one in this world will have more concern for your money than you, not even the investment companies.

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