How You Can Protect Yourself When Investing

One of the biggest fears that can keep an investor up at night is the thought of losing money. There certainly is a reason to worry, as there is always a chance of risk involved when you invest your money in any venture, however, this doesn’t mean you should forego investing or financing altogether. It is about investing in a way that ensures you are protected from most bumps in the road, so by protecting yourself as you continue to invest, not only do you stand to make a good profit, but you are preventing yourself from losing too much in the process and allows you to stay in the investing game for longer.

Diversify Your Portfolio

The one piece of advice that all financial experts will give you is this – diversify your portfolio. In layman’s terms, this means not putting all your eggs in one basket. It can be tricky to determine how a particular sector is going to behave over a long period of time. For example, you may notice that the real estate and retail industry takes a dive with very little forewarning, now if you have only invested in one sector, there is a good chance that you will lose out on a lot of money. It is also a good idea to choose different asset classes if you are planning on sticking with a particular sector, so if you have invested in stocks, try to add a certain number of bond investments to your portfolio as well. This will help to keep things more balanced.

Know What You Are Getting Into

The problem is that every sector, regardless of how solid, contains a modicum of risk. This is simply how things work. That being said, it is always important to do your research to understand what these risks may be. Take marijuana stocks, for example, on the one hand, this industry is poised to increase in value considerably, especially as laws become more lenient, but at the same time, if you live in the USA, the status of marijuana could vary from one administration to the next. If you do want to invest in this particular sector, you could look outside the country for reliable foreign companies, such as expanding your search in Canada.

Calculate Your Tolerance to Risk

Now, there is no denying that losing even a short sum of money can sting quite a bit, however depending on your financial situation, you may actually be able to bear the brunt of this. This is known as your tolerance to risk. Of course, this does depend on your net worth and the amount of risk capital you have saved up, so, if you have an impressive net worth and a decent amount of risk capital, then you should be able to engage in riskier ventures without too much worry. However, if your net worth and risk capital are low, you should opt for trying out more reliable avenues.