Risk is an inevitable aspect of investing. If there were no risk involved, the entire world would be comprised of Warren Buffetts. The elegant ballet between risk and reward is what makes investing exciting, profitable and yes, stressful! With that said, Paul Merriman of MarketWatch.com
outlines seven dumb risks that are easy to avoid but many investors take.
Asset Class Risk
The first four risks outlined apply primarily to the stock market, and like most any investment portfolio, according to Merriman the key to mitigating these risks is to diversify. Just like the old saying “don’t put all of your eggs in one basket” it is important to make sure you are spreading your investments across many different areas.
The next two types of risk that savvy investors need to take into account, and try to mitigate, are related to the control of your investments. Are you in control of your own financial future? Do you utilize a financial planner or stock broker? However you manage your retirement investments, Merriman cautions the reader to at least be informed about what you are paying for. It may help to look at the sales commission you pay for the investments you buy. A 5% commission on a $10,000 investment means you have already guaranteed yourself a loss of $500 before you’ve even begun!
Government-sponsored accounts can help mitigate the final risk Merriman outlines. He encourages investors to put as much of their investments as possible in tax-deferred or tax-free accounts including IRAs, 401(k)s, small-business plans, etc. to avoid the most inevitable risk of all: taxes!
See this guide
for a deeper look at tax-deferred and tax-free accounts.