Putting your money into investments instead of the bank carries more financial risk because there are fewer safety nets for private ventures than with FDIC-insured institutions. In the financial world, greater rewards often correlate with higher risk. That means that the higher your investor risk tolerance, the higher your potential is to make more money from your investments.
Not only is it natural to experience some anxiety about that money and where you’ve put it, but it’s healthy as well. Adopting strategies to help you cope with the uncertainties and risks you face as you grow your portfolio will help you handle the inevitable ups and downs that every investor experiences.
How to Increase Your Investor Risk Tolerance (And Your Potential for Higher Returns, Too)
Strive for Diversity
Do your best to choose investments that provide diversity. When one company or an entire sector experiences a downturn, you won’t feel it through your entire balance sheet. Change is the rule, not the exception, and when something slows down or falls in value, you can rely on something else to provide stability.
Real estate investments, especially turnkey properties, provide a stable cash flow and long term growth. Owning rental property is one of the few avenues where leverage works to your advantage. Unlike buying on the margin in the stock market, housing mortgages are stable and carry favorably low interest rates.
Turnkey properties carry low risks, since the properties are selected and readied for the market by local experts in residential real estate. They offer homes that have strong appeal for renters, ready the property for the market and handle tenant screening, along with the day-to-day activities associated with rental property.
Go Into It Early for the Long Term
The sooner you get started saving and investing your money, the faster you’r money will grow. Turnkey real estate properties are one of the best ways to realize income through asset ownership while holding it for the long term. The monthly rents cover the properties’ expenses and more, and holding it over time builds its value.
Go With What You Know
If you’re investing in stocks, stick with sectors that you understand. It will be much easier to interpret how the stock is performing when you have a grasp of the industry itself. You’ll also know what the risks are, how long the peaks and troughs last, and the companies that offer the best potential for long term growth.
Build Liquid and Non-Liquid Assets
It’s much easier to weather the rise and fall of markets when you have adequate liquidity to see you through. As you grow your assets, grow your bank account as well. Instead of spending your money on discretionary purchases, try to save it to help you ride out slow market conditions.
Wall Street analysts sometimes report that fluctuations in the market are often the result of emotional sell-offs, and don’t reflect true market conditions. When you’re financially liquid, it’s easier to wait out those rollercoaster rides and wait for eventual stability and the return to normalcy.
All investors experience the effects of the business cycle. According to the National Bureau of Economic Research, these cycles last about six years. The contractions, or recessions, last about a year, and the remaining 60 months of the cycle see an expansion. When you put your money into areas that you understand, it will be easier to interpret the signs of growth and slowdowns.
Before you invest, let knowledge be your power. The more you learn about where you’re putting your money, the better you’ll understand what’s behind its movement. While there are times when it’s best to sell, more often, it’s better to hang onto an asset for its long term potential for growth to realize the highest rates of gain.