Investment 101: Key Tips for Minimizing Risk

Studies show that women make better investors than men. Women are less likely to take big risks, and this results in higher investment returns compared to their male counterparts.

While this is true, the same studies have found that being risk-averse is a double-edged sword for female investors. Many don't even invest at all, and choose to put their money in savings accounts. However, it's important to remember that achieving true financial success and equality is challenging without an investment portfolio. Start getting comfortable with the fact that investing is never predictable. But while risk is unavoidable, there are ways to reduce and manage it:

Assess your risk tolerance

Risk tolerance is the level of loss you're prepared to take within your investment portfolio. Factors like personal goals, capital, timelines, and even age all play a role. Not knowing your risk tolerance might result in financial moves that are too risky or not risky enough. It all boils down to three basic categories: conservative, moderate, or aggressive — all of which are influenced by time.

Generally, short-term investors need to be more conservative, especially when navigating the short-term volatility of the stock market. Long-term investors can benefit from being aggressive, while mid- to long-term investors can vary from conservative to aggressive strategies. But these are just general rules of thumb. Risk assessment questionnaires can be helpful tools, but they can also be generic. If you aren't sure, it's best to consult with a financial advisor when assessing your risk tolerance.

Diversify your portfolio

Stock market expert Laoise Leahy previously highlighted diversification as one great way to limit your risk exposure. Stocks, forex, bonds, real estate, or any other investment instrument won't react similarly to market changes.

For example, having investments in the tourism industry during a pandemic is not a good idea. But say you've also invested in telehealth services. This means that you won't be losing all of your investments in 'one basket'. Diversifying doesn't just mean investing in different stocks — it's also wise to spread your capital across different industries and different instruments.

Stay updated with trends and current events

One of the reasons why women tend to outperform men in investments is meticulousness, especially when it comes to doing prior research. Make sure to apply the same diligence once you've already invested in a particular instrument.

This is especially crucial in volatile markets, like forex. To help you keep track of market changes, you can make use of forex trading alerts, which are a great source of relevant economic data. Factors like employment, inflation rates, and political statements influence forex markets. Economic calendars are also useful tools for stock and cryptocurrency traders. They highlight specific events, such as policy changes, and the impact they're expected to have on the market. Keeping up to date with current events and trends can help you make timely and well-informed decisions — thereby lowering your risk.

Don't let emotions take over

Investing is very strategic and methodical, but it can also be a somewhat emotional process. Fear, excitement, or overconfidence can lead to poor decisions like panic selling after one stock market hit.

Luckily, there are ways to overcome emotional trading and avoid being driven by personal feelings. It is important to treat it as a business that requires a detailed plan. Set goals, assess your risk tolerance, stay updated, and have an exit strategy at the ready. This mindset can also apply to different investment instruments. By practicing patience and self-discipline, you can remain strategic and make level-headed decisions. All of these will lead to lower risk, higher profitability, and greater financial success.