When discussing on the topic of investment, our objective can either be to grow our wealth or to generate passive income from the assets we owned. This can be as simple as placing your money into investment tools. However, your investment journey might not be as smooth as what you may have envisioned, some investments just might not turn out the way you want it to.
We must always remember of our little companion in all our investments called Risk. We know that risk and return from investments are always positively correlated, higher returns are associated with higher risk. But has anyone told you that within the same risk basket, you can maximize your returns just by picking the right tools? You are also able to reduce your risk while you continue to achieve similar target return.
To pick the right tools, first we need to understand how the tools work. For example, we need to know how a fund manager manages his fund; we need to know how an exchange traded fund operates; we need to know the liquidity of the tools and more.
To reduce your risk exposure, we would need to apply certain strategies into your investments. There are a few strategies that are commonly used in the market, for example, cost averaging; diversification and etc. Combination of the strategies would complicate things, but the results could be better off. Did you know that liquidation of your investment is part of risk management as well?
A good financial planner/adviser doesn’t just work for you only when you want to invest, but they would also advise you when you want to top up, when you need to cash out and even notify you when your investment is no longer in the risk bracket that suits your risk appetite!