investing

4 Tips For Responsible Investing

A lot of people look at investing primarily as a way to make money. This is perfectly fine, but entering an investment with the express goal of “earnings” can also lead you to be more reckless in your decision-making. Generally speaking, you don’t want to fall into the habit of chasing quick profits in the stock market or any other area of investment. Rather, it’s best to attempt to mitigate risk factors and set yourself up for long-term financial growth.

This is a particularly relevant outlook for those who are focused on saving money and setting themselves up to be financially secure. Investing can be daunting in these sorts of circumstances, but done correctly it can grow your funds and put your money to work for you.

There is no exact formula for a “safe” or “secure” investment but there are still plenty of tips that can help you along the way. Here’s advice that can help you develop a responsible and conservative approach to investing.

1. Diversify Your Holdings

Diversification is always mentioned as a sound strategy for those who want to minimize the risk of investing. The idea is fairly simple. If your holdings are spread out over numerous assets and industries that aren’t related to one another, then what affects one won’t affect the others. This means if one of your stocks or assets plummets in value, you’re protected by the others. Furthermore, investing expert Katrina Lamb has stated that diversification might really be the thing to do in 2017, given a fair amount of geopolitical turmoil and instability. It may be harder to predict sudden shifts in industries than usual, which furthers the need for protection.

2. Know When To Cut Losses

Nobody likes to give up on an investment. Human psychology dictates that people hang onto losses longer than they should, meaning that when an investment dips into the red our inclination is often to hang on and wait for fortunes to reverse. Within reason, this approach can work just fine. But in developing a conservative approach to financial management and looking to save money, it’s important to develop a strategy for when to cut losses on a bad investment. Sometimes it’s better to take small loss than risk a large one.

3. If Possible, Let A Fund Do The Work

The larger point here is to communicate some strategies for those who are managing their own investments. That said, it’s still worth mentioning that something like a 401(k) or a mutual fund can take the hard work out of your hands and allow a professional to make the decisions. For most people this lowers risk, even if it costs a little money to buy into such a fund. As one set of tips put it, some investors find the simplicity to be worth it and it can be a nice introductory step for beginning investors.

4. Invest In What You Know

For a final point, who better to turn to than Warren Buffett, perhaps the greatest investor of modern times? Buffett frequently provides advice to others who hope to do well in investing, and his number one tip is that you should invest in what you know, and no more. Knowledge about an asset helps you to make informed and reasonable decisions. No matter how adept you might be at reading charts and analyzing patterns, having a genuine feel for an asset’s performance gives you an edge when conducting trades.

This advice doesn’t form a comprehensive strategy, but its worth keeping in mind for those who want to make responsible, risk-averse choices.