Thursday, 19 November 2009

Techniques for reducing investment risk (Part 1 of 3)


“Does the future look as black as they paint it?” This is a question that you should ask yourself when you read troublesome economic predictions. On most days, the prevalent opinion in newspapers is a mixture of distrust and hesitation. Is there a way to make solid decisions about where to place your savings and minimize financial risk?

In investments, like in most things in life, it all boils down to using the right methodology. How can we determine what is true? What facts are relevant? Which predictions make sense? Can we figure out the future by applying principles extracted from experience?

“If you intend to climb a high mountain, always choose the smoothest path,” wrote Chinese philosopher Lao-Tzu in the year 520 BC. In times of economic adversity, investing becomes the equivalent of climbing the Swiss Alps bare-handed in the middle of the winter.

After suffering the negative results of wrong financial decisions, many individuals are reluctant to place any money in the stock market. Are those fears justified? Making mistakes is inevitable in any human endeavour. A wise man must be willing to accept occasional errors and use them as stepping-stones for building a better future for himself. Why should we not view the stock market in the same way?

The main lesson to be drawn from past financial mistakes is that, when it comes to investing, methodology is everything. More careful research can help us make better decisions in the future. A more disciplined approach can minimize losses. Taking appropriate measures to reduce risk should prevent us from making the same faults twice.

The following principles of risk reduction have endured the best and worst of times. Use them to your advantage to build a prosperous financial future. From time to time, your decisions will not be correct, but if you adopt a prudent strategy, you can keep your losses under control at the same time that you let your profits grow.

To be continued in Part 2

[Text: http://johnvespasian.blogspot.com]

[Image by carulmare under Creative Commons Attribution License. See the license terms under http://creativecommons.org/licenses/by/3.0/us]

Techniques for reducing investment risk
(Part 1 of 3)


“Does the future look as black as they paint it?” This is a question that you should ask yourself when you read troublesome economic predictions. On most days, the prevalent opinion in newspapers is a mixture of distrust and hesitation. Is there a way to make solid decisions about where to place your savings and minimize financial risk?

In investments, like in most things in life, it all boils down to using the right methodology. How can we determine what is true? What facts are relevant? Which predictions make sense? Can we figure out the future by applying principles extracted from experience?

“If you intend to climb a high mountain, always choose the smoothest path,” wrote Chinese philosopher Lao-Tzu in the year 520 BC. In times of economic adversity, investing becomes the equivalent of climbing the Swiss Alps bare-handed in the middle of the winter.

After suffering the negative results of wrong financial decisions, many individuals are reluctant to place any money in the stock market. Are those fears justified? Making mistakes is inevitable in any human endeavour. A wise man must be willing to accept occasional errors and use them as stepping-stones for building a better future for himself. Why should we not view the stock market in the same way?

The main lesson to be drawn from past financial mistakes is that, when it comes to investing, methodology is everything. More careful research can help us make better decisions in the future. A more disciplined approach can minimize losses. Taking appropriate measures to reduce risk should prevent us from making the same faults twice.

The following principles of risk reduction have endured the best and worst of times. Use them to your advantage to build a prosperous financial future. From time to time, your decisions will not be correct, but if you adopt a prudent strategy, you can keep your losses under control at the same time that you let your profits grow.

To be continued in Part 2

[Text: http://johnvespasian.blogspot.com]

[Image by carulmare under Creative Commons Attribution License. See the license terms under http://creativecommons.org/licenses/by/3.0/us]