Broker Check
3 Strategies for Managing Your Investment Risk

3 Strategies for Managing Your Investment Risk

| August 25, 2023
When young people first start investing, they are often worried about losing their hard-earned money. Although investing is a crucial part of wealth management and protects you from inflation, there is a certain amount of risk involved. With the help of a financial advisor for young adults, you can manage your investment risk and make sure you are comfortable with your choices. 

Ask a Financial Advisor for Young Adults: 3 Strategies for Managing Your Investment Risk

1. Determine Your Risk Tolerance 

Before you make your first investment, you have to understand your willingness to handle changes in the value of your investments. Think of it as gauging your comfort level on a financial roller coaster. Evaluate how comfortable you are with the possibility that your investments might go through ups and downs. This is your emotional capacity for risk. Once you have a clearer picture of your risk tolerance, you can align your choices accordingly. 
If you're more inclined toward stability, you might opt for investments that are less likely to experience extreme fluctuations. On the other hand, if you're open to a bit more excitement, you might explore investments with potentially higher returns but also greater volatility. As time goes on and your financial situation and goals evolve, your advisor will help you to periodically review and adjust your risk tolerance. 

2. Diversify

Diversifying means spreading your money across various types of investments, such as stocks (owning pieces of different companies), bonds (lending money to governments or companies), and real estate (owning a share of property). Within each type, invest in multiple assets to reduce your risk. 
For stocks, this could mean buying shares of companies in various industries, and for bonds, lending to several entities. By doing this, if one piece doesn't perform well, you make sure others can compensate and keep your overall financial picture strong.

3. Invest for the Long Term

Having a long-term horizon in investing is like planting a tree early: it grows strong over time. When you start while you're young, the tree has more time to grow tall and provide shade. Similarly, as a young investor, you have the advantage of time. This means you can set your investments on a path to grow steadily over the years. Even if there are bumps in the financial road, like the ups and downs of the stock market, you can stay calm and patient. 
Just as a tree can weather different seasons, your investments can ride out market ups and downs. Plus, there's compound interest. Over time, your investments can earn more money on the money you already earned, so you're effectively getting paid on top of getting paid! This makes it easier for you to achieve significant wealth without investing large sums every month. 
Determining your risk tolerance, diversifying, and investing for the long term are three crucial strategies, but they can be challenging to implement on your own. It's best to work with an experienced financial advisor who understands the needs of young adults. Give us a call at Jaks Financial to schedule a meeting with Justin Jaks. He'll analyze your situation and then develop a suitable financial strategy that takes into consideration your values and life goals.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. All investing involves risk including loss of principal. No strategy assures success or protects against loss.