No matter the time, age, or circumstance, people have always put a lot of importance on wealth. This isn’t all that surprising, seeing as that’s the way the world functions. Thus, by extension, people are always concerned about increasing their wealth. This is where investing comes in.
Although the majority of the general population receive salaries and save up as much as they can from it, a select few choose to invest it into income-generating assets. Now before this sounds too complicated, the gist of it is this: instead of putting all their money into a bank account and leave it sitting there collecting dust, people instead put it into wealth-earning instruments like stocks, bonds, commodities, among others.
Is investing risk-free?
Rationally and realistically speaking, everything in life has a risk, and it might not be apparent what the risk might be. This can be a dealbreaker to some, but there’s always a silver lining! In this case, it’s a golden rule: Never put all your eggs in one basket.
The magic of diversification
It’s always the same story, but it never gets old. Distributing your assets and wealth through a diversified portfolio means padding on safety risks. Some investors like to do this themselves, while others turn to companies that are masters in this field—just for the economies of scale. Larger amounts of money usually require professional management.
There is a multitude of agencies that provide these types of services for free. They typically apply an array of different platforms or techniques to figure out the safest way to invest. Most employ Enterprise Risk Management or ERM to prepare for anything that might interrupt an organization’s operations and objectives. Through ERM, companies can manage an incredibly diverse number of risks they face.
While the vast majority of corporations in the U.S. have made very little information about their overall risk profiles available to stakeholders, companies in industrialized countries like the U.K. and Australia are much more forthcoming about risk and ERM activities. Nevertheless, the gist of ERM is pretty much easy to understand. There are also plenty of ERM modules available online or in stores to help the public to understand the management technique better.
Should I mix and match investments?
Well, there are a lot of options that one could start with when choosing the instruments to invest in. It all boils down to determining how safe you want to be. Those who are more risk-averse choose peer-to-peer lending or annuities. But bear in mind that the latter usually has high fees associated with them, while the former holds the risk of default. Nevertheless, these two are considered to be relatively less risky than stocks.
The stock market is a game that a lot of strong-hearted investors love to play. To break it down into its most basic forms, investing int he stock market entails dividend-paying common stocks or preferred stocks. Plenty of companies pay dividend yields that are much higher than what one can get on completely risk-free investments. Aside from this, they also have the edge of allowing investors to participate in capital gains. High dividends also provide a reliable measure of protection from price fluctuations during bear markets.
Always remember that there is no clear-cut mix of investments that will maximize a sum of wealth. It’s all just a matter of trial-and-error sprinkled with a little bit of luck.