Before starting to invest, understand the risks clearly!

When it comes to what to invest in, many people tend to focus on high returns, often forgetting to consider the risks involved. The key point is to understand how each investment type differs in risk characteristics so you can choose wisely according to your abilities and goals.

How many types of investment risks are there?

Investors need to understand various risks to manage their investment portfolios effectively. Here are the types of risks that affect your investments:

Market Risk

Factors in the financial markets that influence the overall performance of assets include:

• Stock price volatility: Economic conditions, market sentiment, and company performance can cause prices to rise or fall rapidly.
• Interest rate risk: Changes in interest rates affect the value of debt instruments such as bonds.
• Exchange rate risk: Fluctuations in foreign currencies impact international investments.
• Commodity risk: Changes in oil, gold, or agricultural product prices based on supply and demand.

Liquidity Risk

When you cannot buy or sell investments quickly, you may be forced to sell at a lower price than expected. Assets like real estate or certain bonds often face this issue due to insufficient market depth.

Concentration Risk

When an investment portfolio is heavily weighted in one asset class, the risk increases. The solution is to diversify investments across different securities, sectors, and regions. This balance helps stabilize the portfolio during market downturns.

Credit Risk

The risk that the bond issuer may default on debt payments. Government bonds in the local currency are considered lower risk, while corporate bonds carry varying risks depending on the financial health of the issuing company.

Reinvestment Risk

When bonds mature or are called early, you may not be able to reinvest at the same rate, which can reduce overall income.

Inflation Risk

The real return’s purchasing power decreases as inflation rises. Fixed-rate debt instruments are particularly vulnerable to this issue.

Duration Risk

Life events such as financial difficulties, accidents, or urgent cash needs may force you to sell investments before planned, often during market downturns.

Longevity Risk

The concern that savings will run out before you pass away, especially as life expectancy increases. Planning to ensure annual income covers post-retirement years is crucial.

Foreign Investment Risk

Investing in foreign markets involves risks from exchange rates, political instability, and economic cycle differences.

Risk management techniques before choosing assets

Since all investments carry risks, it’s essential to have strategies to keep risks within acceptable levels.

Avoid risks beyond your capacity - Beginners should avoid high-risk investments until they have sufficient understanding. Deep research is necessary beforehand.

Choose an appropriate investment amount - Even with various asset options, avoid investing everything impulsively. Analyze risks first and start with a small amount.

Diversify your investments - If current investments are not performing well, consider switching to other assets with better potential.

Study thoroughly - There is abundant information online; utilize it to make informed decisions.

Low-risk investments suitable for beginners

If you are just starting out, opt for more stable investments:

Government Bonds

The safest choice, backed by the government, paying regular interest every 3 months, and helping to mitigate market volatility during economic downturns.

Money Market Funds and Short-term Bonds

Suitable for those seeking higher returns than savings accounts but not ready for high risks, or for those needing liquidity for emergencies.

Blue-chip Stocks

Large, reputable companies with consistent profits, regular dividends, and stable performance. Companies like Apple, Microsoft, and Johnson & Johnson tend to be less volatile than small-cap stocks.

High-risk investments – Be cautious

On the other hand, these assets have potential for higher returns but come with high risks:

Cryptocurrencies

Highly volatile, sometimes changing within hours due to market sentiment, news, and regulatory announcements.

CFDs (Contracts for Difference)

Offer significant profit potential but use margin, meaning leverage can amplify both gains and losses. Counterparty risk is also an issue because CFDs are over-the-counter (OTC) transactions.

( Options and Futures Derivative instruments that allow trading assets at predetermined prices, with high leverage and significant risk, especially for beginners.

) Forex Trading A large and liquid market but highly volatile. Traders often use margin, which can lead to substantial profits or losses. Volatility is influenced by economic indicators, political events, and central bank policies.

Summary

Deciding what to invest in starts with assessing your risk tolerance. Beginners or those unwilling to take risks should choose low-risk investments such as government bonds, money market funds, and blue-chip stocks. Experienced investors willing to accept higher risks might explore cryptocurrencies, CFDs, futures, or forex. The key is to learn deeply, manage risks effectively, and invest according to a clear plan.