In my previous article "Investing In Cryptocurrencies Or Other Assets, The Desire To Achieve Financial Freedom" I commented that investing is a way to make our money grow, but it also implies assuming certain risks. The risks of investing are the possibilities that the result of our investment will be different from what is expected, either by obtaining a lower return, by losing part or all of the invested capital, or by not being able to sell or buy the assets when we want.
We must always keep in mind that there are different types of risks when investing, which depend on the financial product chosen, the market in which it operates, the investment term and other external factors and are classified according to their origin, nature and impact. thereof. Some of the most common are:
Market risk: risk that the value of our investment is affected by general market conditions, such as the economic, political, social or environmental situation. For example, a global economic crisis can cause a general fall in the prices of shares, assets, cryptocurrencies, etc.
Price risk: risk that the value of our investment fluctuates due to the supply and demand of the assets. For example, if there are more sellers than buyers of a certain cryptocurrency, its price may go down.
Interest risk: risk that the value of our investment is affected by changes in interest rates. For example, if interest rates rise, the price of bonds tends to fall, since they lose attractiveness compared to other investments that offer a higher return.
Credit risk: risk that the issuer of the asset in which we have invested does not meet its payment obligations, whether due to bankruptcy, non-payment or restructuring. For example, if a company in which we have bought shares goes into bankruptcy, we may lose all or part of our money.
Liquidity risk: risk of not being able to sell or buy assets at the desired time or at the expected price, due to lack of demand or supply in the market. For example, if we want to sell shares of a little-known company or with little negotiation, we may not find buyers or we may have to accept a very low price.
Of course there are many other risks, these are just a few examples, the important thing is to ask ourselves: How can we reduce the risks of investing? Although we cannot completely eliminate the risks of investing, we can take some measures to minimize them and adapt them to our profile and objectives. Some of these measures are:
Diversify: it consists of distributing our money among different types of assets, markets and sectors, to reduce the negative impact that a single product or a single geographical area may have. Thus, if a part of our portfolio suffers losses, we can compensate them with the gains of another part.
Get informed: it consists of knowing well the financial product in which we are going to invest, its characteristics, its advantages and its drawbacks. It also implies being aware of the evolution of the market and the factors that may influence our investment. This way we can make better decisions and anticipate possible adverse scenarios.
Planning: it consists of defining our financial objectives, the term in which we want to achieve them and the level of risk that we are willing to assume. It also implies establishing a budget for our investment and a strategy to follow it. This way we can adjust our portfolio to our needs and expectations.
Get advice: it consists of having the professional help of a financial expert who guides us and recommends the most suitable products for our profile and objectives. It also implies periodically reviewing our portfolio with the adviser to make the necessary adjustments.
The risks of investing are unavoidable, but they can also be an opportunity to obtain greater benefits if we know how to manage them. The important thing is to be aware of the level of risk that we can assume and choose the financial products that best suit our profile and objectives.
"To invest you don't have to be a millionaire, but to become a millionaire, you have to invest". - Anonymous.
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