Managing Investment Risk 📊

an illustrated piggy bank shown with a target

In life, we encounter risks all the time. They range from the most mundane of daily-activities, such as driving to the shops or crossing the road, right through to the more obvious chances we take e.g. quitting your day-job to chase your dream of being a daredevil 🚲

When evaluating the risks we face, we generally decide how acceptable they are to us by offsetting the potential benefits vs. the likelihood of risks we’re willing to face in order to achieve them. So, whilst the life of a daredevil may well be a very rewarding one... the probability of you becoming successful in this profession (and not damaging yourself in the process) means that it’s probably not a wise career move 🤷‍♀️ But hey, don’t let us put a damper on your dreams.

If you’ve ever looked into investment products, the disclaimer, “Capital at Risk”, will almost certainly sound familiar. There is a very real risk when investing. Therefore it’s important that we are aware of all the potential pitfalls... before deciding where to stash our hard-earned cash!

When considering the value of investments, we are ultimately trying to balance uncertainty against potential returns. The only certainty when it comes to investing is that there is surely no such thing as a “sure thing”! If there were... then we’d all be as wealthy and successful as Warren Buffet 🤑

Though risk is an unavoidable aspect when it comes to investing in stocks or bonds (with this risk only increasing in accordance with the chance of more lucrative returns), thankfully there are strategies that you can employ to help manage this:

  1. Do Diversification: Consider putting your funds in more than one stock. Spreading your investments across many companies, prevents the chance that the chance that the entire value of your investment could be wiped out if that company under-performs. You can check out our previous article on diversification if you’d like to learn more about this.
  2. Play Defensive: Allocate some funds to defensive assets such as bonds and fixed interest assets. These can help mitigate the uncertainty posed by riskier asset classes, for example stocks / shares.
  3. Go Global: Invest your money across a variety of geographical regions. This means that the risk is spread across different economies, reducing the risk posed by a crash in one particular country... or even continent.
  4. Split Sectors: Aim to invest in different sectors. Like geographical diversification, this helps avoid the risk that a crash in one particular sector could decimate a large proportion of your overall investment value.

If you'd like to learn more about investing with Plum then you can check out our website.

You can get started with Plum investments here (the first month is free 😮).

Remember, your capital is at risk if you choose to invest.