Do you know anyone who’s lost a lot of money in the stock market? It’s hard to feel safe putting your money in the market when you know that there’s always the risk that you lose it all. You might feel more confident if you know about the various ways to mitigate financial risk.
In order to properly execute a financial risk management plan, you need to get familiar with the different types of financial risk. What is financial risk? It’s the possibility of losing your investment funds.
The article below will help you understand financial risk and provide you with a list of ways to protect your financial assets. Continue reading to learn more about smart financial practices.
Diversify Your Assets to Mitigate Financial Risk
Have you ever heard the expression, “don’t put all your eggs in one basket?” People who are smart with their finances usually take this phrase to heart. The best way to protect your financial assets is to diversify your financial portfolio.
If you’re investing in the stock market, you can diversify your portfolio by investing in a broad array of stocks, bonds and ETFs. You should also invest in multiple industries.
It’s highly unlikely that every industry suffers a downturn all at once. If you’re only investing in tech stocks, your portfolio will suffer if the tech market takes a downturn.
A diversified portfolio, however, wouldn’t suffer as much from a downturn in one industry. One easy way to diversify your portfolio is to invest in broad market ETFs.
These financial instruments allow you to buy into many different verticals at once, protecting you against the economic downturn in any one vertical.
Keep a Large Emergency Fund on Hand
The general consensus among financial experts is that you should maintain a three-six month cash emergency fund.
Cash can never lose value as quickly as your investments can. This emergency fund will allow you to cover unexpected expenses without having to sell your investments prematurely.
Have an Exit Strategy for Your Investments
When you’re performing a financial assessment, think about how you’re going to sell the assets that you do have.
It may be smart to set a target date or target price at which you’ll sell your investments. You can find exit strategy resources at a website like mortonbrownfw.com.
Financial advisors always recommend that you invest with a plan. Having an exit strategy is a big part of your financial plan.
Analyzing the Ways to Mitigate Financial Risk
Now that you’re familiar with some of the best ways to mitigate financial risk, you’re ready to manage your money with confidence. Remember to diversify your investment portfolio, build your emergency fund, and plan out your exit strategy.
Taking these steps will help to protect your assets. If you’re interested in learning more about how to protect your financial assets, be sure to continue reading all the blog posts going live on this website.