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One of the greatest dilemmas faced by many is "how much risk should I take?
- particularly when considering the current market turmoil?" The answer can
be quite simple - as much as you are comfortable with. Other questions typically
asked are: Exactly how much risk is involved?, Will my entire investment at risk?,
Is there any chance that I may incur more liabilities than the original sum?, etc.
In some cases, awareness of risk can cause an investor to make overly cautious investment
decisions. The investor would tend to put "everything" into the bank savings
or fixed deposit accounts. While such cash-based investments are good in preserving
investment capital especially during turbulent periods, but over the long-term, you
will lose out as they generally cannot provide significant capital appreciation to
meet your key investment goals. Nevertheless, in the short-run, it makes sense to
shift your portfolios to investments that seek to conserve principal, rather than
to grow principal. This will help lessen your downside risk.
While you may not be able to avoid risk altogether, you can learn how to manage it
with some little help from financial advisors in order for you to pursue your financial
goals with more confidence. Before you do anything, you need to know your risk tolerance.
Financial planners or other investment professionals normally have a set of questionnaires
to enable their clients to measure their risk tolerance and to assess what investment
mix is right for them.
Your advisors will assess your answers and determine your risk tolerance before making
any recommendations. It is advisable to see a financial planner for help if you know
nothing about your risk tolerance. The small fee that you pay today could deliver
you greater rewards in the longer term.
Whatever you do, you will encounter some form of risk. Certainly, no one would build
an investment portfolio that causes them to have sleepless night. You must feel comfortable
about your investment objectives and the options that you select.
You can benefit from understanding risk regardless of how conservative or aggressive
you are. You may find risk to your advantage if you use proven risk management techniques
and stick to your investment plan - rain or shine.
In short, all investments regardless of cycles involve risks but there are appropriate
strategies you can follow to manage these risks and pursue your financial goals with
less worry. Being overly-cautious by taking only the safe-route and avoiding risky
investments isn't necessary the best solution. Only you can decide what you are willing
to chance for meaningful rewards.
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