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3 Ways to Protect Your Investment Portfolio

Financial investment is basically risking your money for more money. The bigger the payoff, the riskier it usually is. But the opposite is rarely true. Just because an investment vehicle carries more risk doesn’t necessarily mean the reward is equally big. In some cases, there’s a big chance that you’re going to lose your entire investment, but that doesn’t mean that you shy away from risky ventures.

The basic investment goal is quite straightforward: You want to grow your wealth. However, you’ll also have to contend with factors such as fluctuating markets and inflation. Whether you primarily invest in the stock market or work with an Islamic account, you need a sound investment strategy to counteract such risks and ensure your money keeps on growing.

You don’t need to liquidate your entire position if the going gets tough. There are lots of ways to minimize your risk exposure and ensure you come out on top even if the market tumbles a hundred points.

  1. Diversify your investments

A diversified portfolio is basically market speak for having assets in multiple investment vehicles. Investing in everything from the foreign currency and the stock market to bonds and real estate property ensures that you’re insulated from the collapse of a single market. Spreading your money around also means that a steep slide in real estate values won’t bankrupt you, as you still have your other assets to fall back on that might have survived the market doldrums.

Here’s a quick scenario. Let’s say you’ve invested 100 dollars in asset A, 100 dollars in asset B, and 100 dollars in asset C. If asset A’s value is wiped out, you’re only down 33 percent since your holdings in other asset classes weren’t affected. In some cases, the conditions that led to asset A’s downfall could also increase the value of your other asset holdings, decreasing your exposure.

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  1. Monitor your portfolio

If you already have a diversified portfolio, then it probably means that you’ve taken the time to understand the fundamentals of the financial markets. And since you want to maximize your returns from your investments, you might also have access to financial data that help you make better decisions. Constant vigilance is one of the cornerstones of financial safety. If you don’t monitor the markets and your investments, all your money and efforts could be wasted.

Investment isn’t the best way to grow your wealth if you’re the set-and-forget type. For starters, you might miss some obvious signs that will help you make informed decisions, either by liquidating a losing position or buying more when the market is set to go up. At the very least, you should review your portfolio once every 3 months, or at the start of each financial quarter. If you have access to an online platform, you can better monitor your investment performance as well as any dividends.

Stay calm when the markets tumble. As long as you remember your long-term goals and stick to your investment strategy, you should only adjust your holdings only if the data and market conditions call for it.

  1. Perform due diligence

We’re all familiar with investment scams, but many of us think that we’re too smart or cynical to fall for them. However, scams and frauds are becoming more sophisticated and believable, and many of us probably can’t distinguish a real investment from a fake one even if we review their financial statements. The financial world is still reeling from Bernie Madoff’s billion-dollar Ponzi scheme that affected thousands of investors.

You need to perform due diligence on any investment opportunity that comes your way. For starters, you need to check if the firm you’re investing in is registered with the relevant government regulators. Each financial market or asset class has its own governing bodies and regulations, so you might need some help. You should also review their financial statements and ask for reviews from other people or companies who have done business with the venture. If all else fails, trust your gut. If it sounds too good to be true, it probably is.

You have to consider a lot of factors to make the right investment decisions. Don’t let risk and anxiety keep you from participating in the market as you could miss out on a lot of opportunities. Surround yourself with financial professionals you trust and always put logic first.

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