Avoiding Unnecessary Risk as a DIY Investor
Investing can be risky business. But you can minimize that risk by investing wisely. Hannah Szarszewski CFP, with Blue Mountain Financial Planning discusses ways to avoid unnecessary risks in your investment strategy.
Key Takeaways
- Assess your risk capacity by asking: 'If my investments perform poorly, how much can I afford to lose without damaging my financial plan?' This determines the maximum risk level appropriate for you.
- Avoid investments that promise high returns with low risk—if it sounds too good to be true, it probably is. Legitimate investments require accepting either lower returns or higher risk.
- Keep any single stock or bond position below 5% of your portfolio; anything above 10% is a serious red flag. Diversification eliminates unnecessary company-specific risk that doesn't reward you.
- Be wary of complex investments you don't fully understand. If salespeople can't clearly explain how the investment works, treat it as a red flag—complexity doesn't equal sophistication.
- Don't be too conservative with cash savings; inflation will erode your purchasing power. Find a balanced portfolio that lets you stay invested through market downturns rather than panic-selling at losses.
Investing can be risky business. But you can minimize that risk by investing wisely. Hannah Szarszewski CFP, with Blue Mountain Financial Planning discusses ways to avoid unnecessary risks in your investment strategy.
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