Skip to content

The One Question You Must Answer Before Investing

July 12, 2012

If many of the large banks, brokerage and financial services firms seriously considered their risks beforehand, the 2008/2009 financial meltdown could have been avoided and many of them would still be in business or in better control of their companies.

You have to be able to assess your risk and not just weigh the benefits against the possible losses, but also consider the worst that could happen if what you do turns out wrong.

Losses are not fun, but some are natural when investing.  The goal is not to suffer losses that can devastate you and prevent you from recovering.  Manage your losses and the gains will take care of themselves.

 

Some factors that increase risk are

  • Failure to properly diversify
  • Too much leverage, i.e. debt
  • Not understanding what has to occur to make money
  • Investing after large run ups
  • Not applying common sense to what you are doing
  • Not ascertaining (and usually overestimating) the work, thought and effort done by the advisors recommending the action
  • Not being thoroughly satisfied that the advisors recommending the investment are truly independent and are not being compensated separately for steering you to that product (unless fully disclosed to you beforehand)

A way to protect yourself is to ask (and really answer) this one question before making any investment: “Suppose what I do turns out wrong?”

2 Comments leave one →
  1. Robert Nagler permalink
    July 19, 2012 3:13 pm

    when you invest in the stock market you do not have control of you investment it depends
    who the are the managers and their are factors such as greed by the management that could to losses as we have seen in the banking and real estate sector of our
    economy

  2. July 29, 2012 9:32 pm

    Great comment. Look at my Blog for July 31.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: