It’s an accepted fact that investing comes with risks. No matter which asset you choose, you’ll be facing the possibility that you won’t make a profit, or you may even experience a loss in the money you put in.
While you can’t avoid risks completely, you still shouldn’t invest without taking care. After all, there are still things you can do to increase your chances that you can protect your capital.
1. Choose your assets carefully
The more risk, the more potential reward. Conversely, the less risk, the less potential reward. These statements are generally true for investing, so you can choose to put your money in assets that are less likely to experience the usual ups and downs of a market cycle.
Some of the assets that you can consider are:
- Treasury notes, bills and bonds – These are debt made to the Philippine government, which also guarantees payment.
- Money market instruments and funds – These are short-term debt instruments that aren’t typically very volatile.
- Blue-chip stocks – These are shares of a company that has grown to be very big, relatively stable, and look poised to continue succeeding.
Don’t forget that the profit potential for such assets isn’t very high, so you need to consider how that may affect your money goal.
2. Diversify your portfolio
Even the assets that fit a conservative risk profile can be affected if something negative happens to a company or industry. Something could also happen that has an impact on a certain asset class.
To avoid this, spread your money around by diversifying across industries and asset classes. For example, you could have shares of companies in the power and communications industries, and also units of a Unit Investment Trust Fund (UITF) that holds bonds from other industries and the government.
3. Don’t react emotionally
If the value of your portfolio dips, pause and take a deep breath. Then, look at the cause and decide on your next steps as logically as possible.
While it might look like cutting your losses is the best thing to do, remember that it’s only a paper loss until you actually pull your money out. You may find that the drop in value is temporary, and that it will probably go back up in the future.
Of course, it is also possible that cashing out is the best solution to avoid further losses. In that case, you can feel assured that you made the best decision at the time.
