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Investment Risk Management With 6 Simple Ways


Every investment comes with its own risks. If someone told you to invest in an investment that doesn’t have any risk, then you better run away. But what if there’s a way for better investment risk management?

Let’s see at some of the ways to manage risk as per below:

1. Age

Basically the younger you are, the more risks you can take. This is because you can afford to make mistakes while you are still young. But the older you get, the closer you are to retirement age, then you can afford fewer mistakes.

When you are in your 20’s or 30’s, go for riskier investments such as crypto, equities and futures market. Embracing the ‘high risk high return’ concept, you should be able to take on higher risks.

But when you are in your 40’s or 50’s, and with 10-20 years left of working life, then you should be looking at more stable investments that are not high risk and not having low returns. Investing in robo-advisor, ETF, unit trust, REIT can give a rather consistent return if you stay invested for the rest of your 10-20 years before retirement.

Read: Best Tips on Financial Planning for Fresh Graduates

Let’s move on to the next step in investment risk management.

2. Current Family Situation

When you are single and young, you have less commitment and can tolerate more risks. You have a lot of time to learn, study and grow compare to someone who is already retiring.

If you are a young and newly married couple, you should also be able to tolerate more risks towards achieving your financial goals. 

However, couples contemplating divorce and couples with many kids should be more risks adverse and opt for lower risks.

3. Current Income Source

If you and your spouse are both working, then you can invest in riskier investment vehicles for a better investment risk management.

For example, the one with the more stable income, with good employment medical and retirement benefits can enable the other spouse more flexibility and take more risk for higher investment returns. Or you can also consider starting a new business which can pay off handsomely.

But you should also consider your commitments and expect the worse, just in case the investment doesn’t go well.

Whereas for families that only have one breadwinner, you shouldn’t be taking higher risk when it comes to investment.

Read: 3 Ways To Increase Your Source Of Income

4. Extra Cash

The rule of thumb when it comes to investing is that you need to have an emergency fund first. Once you have six months of your monthly salary being put aside, then you can take on higher risks with your investments.

If you don’t have an emergency fund, then you shouldn’t be taking high risks. Think of an exit plan and play out the worst case scenario.

But if you have huge debts, especially credit cards and personal loan, then it is better you clear off the debts with higher interest rates first.

Take for example credit card that charges 15% to 18% per annum, can you find a ‘safe’ investment vehicle that can give you more than 18%?

If no, then it is best if you settle your outstanding credit card debts before moving on to higher risk investments.

5. Protection

Another good way for investment risk management is to take a good look at your protection’s coverage. Make sure that you are well covered for unexpected events such as sickness, hospitalization, disability or premature death.

Ensure you already have sufficient insurance coverage, before undertaking higher risk investments. Because your family can be spared from a financial disaster should something bad were to happen to you.

Read: Should I Give Up Paying Insurance Premiums In Difficult Times?

6. Sleep Easy

The final step in investment risk management, is how well you can sleep at night, and not having to worry about how your investment is doing.

It is not worth to invest in high risk assets when you are concerned about it losing value, let alone losing your sleep over it.

Will you be able to survive should it collapse and you lose all your money?

If the answer is no, then you should be investing elsewhere that can give you a peace of mind.

You Are In Control Of Your Own Investment Risk Management

At the end of the day, you know yourself better than everyone. Once you know your risk profile, then you can better manage your own investment risk management. If anything, do your own due diligence before investing your hard-earned money.

Make sure you understand the risks involved, and don’t only focus on the potential return that it might bring.

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