Investing offers an excellent way to build wealth. Many people are now investing in stock markets, real estate, options, and other opportunities as well. However, where there is a potential to produce profits, there’s also a risk that you could lose money. That’s why financial guru Nils Larsen is going to share some vital insights.
“Investing is vital for building wealth and if you’re not investing, you should find ways to set aside money so you can invest,” Nils Larsen manager suggests. “That said, before jumping into markets, it’s important to understand the basics and also the risks.”
Generally speaking, the higher the potential to produce profit, the higher the risks. Some day traders invest a lot of money in penny stocks and when their theories prove correct, they can make a lot of money. However, a lot of day traders have lost huge sums through penny stocks as well.
One important concept for reducing risk is diversifying your portfolio. If you put all of your money into one asset, say stocks of your favorite computer company or auto brand, you can lose a lot should that stock perform poorly.
“Diversification is vital for small retail investors, big institutions, and everyone in between,” financial manager Nils Larsen argues. “As they say, don’t put all your eggs in one basket, and that’s especially true when it comes to investing.”
Recognizing that diversification is important is the first step. However, actually diversifying your portfolio to reduce risk and to increase the chances of locking up big gains is easier said than done. Still, with the right strategies, you can protect yourself and tap into upside.
“When it comes to diversifying, you want to spread risks around,” Nils Larsen manager says. “You can park some money in hot technology stocks, then some money in say food production, which is pretty resistant to economic downturns and recessions. Some more money might go into energy stocks, you want to invest in different industries.”
Often, stocks rise and fall in relation to one another. If Amazon enjoys a banner year marked by rapid sales growth, other retailers, say Target or Best Buy, may suffer slower growth. Consumers can purchase only so much after all.
Some investors also diversify by investing in a few of the most competitive companies in any given sector. This way, you can enjoy gains no matter which company performs the best.
It’s also smart to diversify the type of assets you own. You might purchase another house to rent out, while also buying stocks and bonds. You may invest in more complex instruments too, like options.
“It’s good to have a mix of financial assets,” finance whiz Nils Larsen says. “Rental properties provide you with physical, tangible assets. So too does gold and silver. Stocks are great, but sometimes bonds are the right buy. And if you’re unsure of anything, the best advice is perhaps to seek professional help.”