How to Avoid Unnecessary Risk in Investment :For wealth creation through investment, it is important to take right decisions and maintain patience. But many times investors take such steps due to greed, lack of knowledge or haste which make their investment as risky as gambling. Therefore, to be successful in investment, it is important to know how to avoid taking excessive risk while investing. Here we are going to tell you 10 such things, by following which investors can avoid risky behaviour.
Understand the difference between investment and gambling
Investing should never be considered a magical way to get rich overnight. Such thinking can make investment as risky as gambling. It is important to understand that there is a big difference between investing and gambling. This is the difference between the objective and strategy of both. investmentIt is a long term plan thoughtfully made to achieve your financial goals. This includes assessing risk and taking strategic decisions. At the same time, investing money without any logical plan just for the sake of earning quick profits is a sign of gambling mentality. That is, if you do not know why you are investing in an asset and on what logical reasons the expectation of profit is based, then you may unknowingly move towards gambling. You can avoid making such mistakes by following the 10 things mentioned below:
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1. Set your financial goals
Decide your financial goals before investing. Link investments to your long-term plans like children’s education, retirement fund or buying a house. This will save you from taking unnecessary risks.
2. Avoid greed and haste
While taking investment decisions, the expectation of profit should be based on reasonableness and understanding and one should also be prepared to give sufficient time to one’s investment to achieve it. Enticing investment offers that make you rich overnight are often misleading. Avoid falling prey to such hasty offers.
3. Do not invest without correct information
In the quest to make quick money, many people jump into futures and options (F&O), day trading, cryptocurrency or other high-risk options. Lack of expertise regarding these investment options methods can lead to huge losses. To avoid such mistakes, always invest money in only those investment options which you understand well. Do not invest in investment products that you do not understand properly. Remember, investing in any investment option without understanding the risks associated with it is like gambling.
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4. Adopt diversification in investment
Invest by dividing your investments across different asset classes such as equity, debt, mutual funds and gold. Due to this, if there is a loss in one asset class, investments made in the other asset class will keep your portfolio safe. Diversification also protects your investments from market fluctuations.
5. Set risk limits
While investing in high-risk investment options, definitely decide your risk limit. For example, even if you decide to invest in F&O or crypto after understanding it well, do not invest more than 20% of your total investment in it. Also set a stop-loss limit for such investments.
6. Don’t invest on the advice of others
Do not invest in any asset just because one of your friends or colleagues has done so or advised you to do so. Also avoid investing on the advice of social media influencers. Remember that people often share stories of their profits, but shy away from mentioning their losses. Also keep in mind that if everyone is praising a stock, it’s often time to be alert. This could also mean that the stock has already gone up a lot and now there is less scope for further profits.
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7. Keep emotions under control
It is important to control emotional reactions like anger, fear or disappointment while making investment decisions. Otherwise these emotions can affect your ability to take the right decision. For example, investing more money to compensate for losses (Chasing Losses) is a mistake in which many investors fall into.
8. Avoid adrenaline rush
The excitement of making quick profits often leads to more risky decisions. Be wary of products promising high-returns. Look at every investment from the perspective of calculation. Avoid taking decisions due to adrenalin rush i.e. excessive enthusiasm. For example, if someone promises to multiply your money 4 times in 5 years and you jump at the thought of that potential profit, then you may take a wrong decision.
9. Be prepared to seek professional help
If you are confused about your investments, seek help from a trusted and SEBI approved financial advisor. Ask the advisor openly about your curiosities and apprehensions. Expert guidance can help you in taking the right decision regarding investment. But do not blindly follow the advice of any expert. Only when you understand something completely, move forward on it. If the loss in investment is affecting one’s financial condition as well as mental health, then one should not hesitate in taking psychological advice.
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10. Understand the importance of discipline in investing
The importance of discipline in investment is very high. This means that before investing in any new scheme, assess the risks and possible returns associated with it. After this, stick to a well-thought-out investment plan and track the investments regularly.
By adopting these 10 mantras, you can not only keep your hard-earned money safe, but can also easily achieve your financial goals. Overall, investment is an important financial decision, which requires correct information, patience and discipline. Do not make investing a gamble in order to make quick money.
