How To Minimise Losses The Next Time You Invest

By Nurazrin Suhadi

When it comes to investment, some people are not very sure what kind of risk and returns they are exposed. Most of the times, returns are discussed in depth but when it comes to returns, people do not pay special attention. If you have a sound financial knowledge, I am sure you will calculate all the risk that you will be exposed. In short, one will be automatically exposed to risk when one made an investment.

Risk can be classified into two categories. Systematic risk; represents risk that is common to all assets. It cannot be diversified away. The other type of risk is unsystematic risk; represents risk that is unique to an asset and can be diversified away.

Examples of systematic risks are interest risk, inflation risk, market risk, exchange risk and reinvestment risk. On the other hand, examples of an unsystematic risk are country risk, liquidity risk, business risk, default or credit risk, industry risk and financial risk.

As you can see, risk is a word that has a lot of meaning to it. You will need to consider the risk you will be taking. Choosing an investment vehicle is not an easy task as it requires you to do a thorough homework. A mistake in you r risk assessment can cause a huge lost.

The main idea of investment is to reduce the lost and increase the returns. There is no point if you make small returns conservatively but at one point, you make a huge lost. Risk can be reduced not eliminated. If you are not sure of what kind of risk you are exposed to, it is better that you do not invest in that asset. You will need to be sure and confident of your investment.

Be sure to do your research the next time you make an investment. There is no room for mistakes. You do not invest your money in an asst and hope that it will prosper. Hope are for the hopeless. You will need to be actively involved in your investments so that you can avoid unnecessary losses.

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Published at Aug, 15 '07 ; read 350 times;

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