Types of investments by degree of risk

Investment types by risk

Investing is certainly an interesting process for those who are well versed in this. However, most people have a stereotypical idea of ​​which investment strategies are considered high-risk, which are not, where is it safer to invest money, etc.

This point is clarified in more detail by Marat Amirovich Mynbayev, a trader with many years of experience, investor and founder of Amir Capital Group:

“In fact, the choice of an investment strategy is very individual. The concepts of” high-risk “and” low-risk “do not mean at all what we are used to. Each person has his own concept of risk, the amount that he can lose And, accordingly, the “high-risk” strategies of two specific people will already be different.

For example, a person bought an apartment for $ 50,000 (possibly in another country), with an investment goal to resell in 5 years at a price 50% higher. The price after 2 years fell by 50% of the purchase price, due to a pandemic (political conflict, natural disaster). If a person made this purchase for 5% of their capital, then this is normal, because it can calmly sit out the fall and after three years, at least, the price will recover, and possibly even reach the desired growth.

But if a person spent all his savings on this purchase and hoped to pay for the child’s education from the sale, and more often it happens that the purchase with borrowed funds and the person was fired from work as a result of the global economic crisis, and he cannot pay on the loan, then this is very high risk! “

Therefore, the conclusion: you can sort out strategies like a rubik’s cube and choose your own depending on 5 parameters:

1. Investment horizon – split the asset portfolio into three time categories, for example, there are short-term investments up to 1 year, there are medium-term investments up to 5 years, long-term investments over 20 years. What can be high-risk for short-term investments can be low-risk for long-term ones. As in the previous example, after 5 years the price of the purchased property may rise again!
2. The value of the investment portfolio in total assets and the potential loss, which will be relatively “painless”. For example, you are engaged in venture investing, finance startups where all 10 projects can shoot, or maybe not one of them will shoot, but if you invest no more than 5% of your capital and there is a project selection system, then this also cannot be attributed to a high-risk strategy investment.
3. Expected profit – you should always follow the rule that the expected profit should always be three times the possible loss. For example, if the price should rise by 60%, then if the price decreases by 20%, immediately sell!
4. Asset liquidity – an apartment has been sold for a relatively long time, but gold is faster!
5. Time for portfolio management – if I can devote 1 hour a day to analyze my portfolio of stocks or other financial instruments, this is better than 1 hour a week, but if this is your business, then it is at least 16 hours a day. < / li>

And one more important rule: there are a lot of risk hedging tools with which you can reduce risks and these tools must be used. In each specific case, you need to understand and build your strategy, unfortunately there are no universal strategies, only general rules are universal.

For example, invest only in what you are good at, control your investments, diversify your portfolio, always remember the ratio of loss to profit 1 to 3, and invest only after drawing up a clear financial plan. ”

Investing is always a risk, but you need to approach it with a sober head and a cold mind.

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