This archive report was first published on 7 July 2019.
Understanding Investment Risk ¶
On July 7, 2019, Ndirangu Ngunjiri wrote about the importance of controlling investment risk in a Business Daily Africa article.
Investors often rush into the market when it's doing well, only to unload their shares at the first sign of decline. However, this approach can be risky, and it's essential to be knowledgeable about market movements.
Investing for the long term reduces investment risk, as even though the price of a given investment may rise and fall within a short period, it generally will gain back any losses over the long term.
One effective method of managing risk is to invest regularly, investing a consistent amount every month or quarter, regardless of what is happening in the markets.
When markets are volatile, scammers try to take advantage of investors, and it's essential to be cautious and put risk in perspective.
By better understanding the nature of risk and taking steps to manage those risks, you put yourself in a better position to meet your financial goals.
Cost averaging is a more disciplined approach, where you invest a fixed sum of money at regular intervals, whether the market is up or down.
- Focus on your investment goals and avoid panicking when markets drop.
- Consider whether the assets you hold are still appropriate to achieve your long-term goals.
- Look at how market volatility has affected your investment in the past and consider whether there is any information available that suggests any short-term losses won't be regained.
- Investors should take a cue from environmental experts and avoid concentrating in a stock, industry, sector, asset class, or country.
- Research shows that investing for the long term reduces investment risk.
- Monitoring your investments and rebalancing your portfolio as needed is essential.
- Keeping a constant weighting in your target asset allocation is a better long-term strategy than trying to outguess financial markets.
