Every investment comes with risk, no matter what type it is or how heavily you’re invested. You’re putting money into something and hoping to be paid back more, but there’s no guarantee this will happen. It’s fun and exciting, but it’s also scary. Many investors live for this thrill, and more power to them. But if you’re someone who likes to keep things on the safer side, you’re all about finding ways to reduce your risk. I’ve got 3 for you, and they’re guaranteed effective, if you do them right.
Diversify Your Investments
First up, you need to diversify your investments. I’m sure you’ve heard this a thousand times before, and for good reason. IT WORKS. Investing in a variety of different assets, whether it’s stocks, bonds, real estate, or business ventures, just makes sense. It’s called not putting all your eggs in one basket, because when that basket goes to crap, all your eggs get busted – and no one likes busted eggs. So be smart and diversify your assets. You can even take it a step further and diversify within individual asset classes. For instance, let’s say you really love real estate. It’s your favorite investment, and you have a knack for it so it makes you the most money. Well, diversify within that asset class by choosing different types of properties. Single-family residential, multi-family, commercial buildings, apartment complexes, land – use your knowledge and experience to explore and invest in different types of real estate to make your portfolio as diverse as possible.
Explore Different Markets
Like diversifying your assets, diversifying your investment markets can reduce your risk, too. No market performs exactly like another; each is its own microcosm of the larger national market. Take the time to research different markets to see what their strengths and weaknesses are, as well their current performance stats and projections for the future. If you can break into an emerging market right as it’s starting to heat up, you can score big time. Be careful with this one, though. While market diversification can help reduce risk, if you invest in a declining market or one that’s oversaturated with investors, you could actually increase your risk.
My final recommendation for limiting your liability is to find a great partner and share some of that risk with them. With a partner, you can share the cost to invest, so you’re not putting as much money into a particular property. You can also divide up many of the responsibilities of ownership, leaving you with more time to focus on other investments or business ventures. While an argument can be made that partnering with another investor can sometimes add risk, with careful consideration of who you’re teaming up with, much of this can be mitigated.
Don’t let perceived risk hold you back from your investment dreams. There will always be some level of risk involved with any investment, but there are several actions you can take to alleviate some of that liability. Educate yourself, don’t make rash decisions, and let the facts guide you into any new investment. That, in addition to the 3 strategies above, will send your risk level plummeting.