Step four in the Financial Woman Grow Your Money process is putting your money to work for you. One of the biggest challenges with this step is to accept the risk that comes with growing your money. If you stop to think about it, you’ll find that risk is inherent in everything you buy or do. This post is part of Women’s Money Week 2012. For more posts on this Sunday’s featured-topic, Goals and Taking Action Roundup, see Goals and Taking Action Roundup.
Risk is everywhere. There is the potential risk that comes with the loss of love in a relationship, or worse, losing that person due to an illness or death; but most of us still enter into relationships and have families. Risk is inherent in driving across town and air travel, but we still go anyway. You can buy a diamond only to out that its actually cubic zirconium.
Let’s look at the types of risk that you encounter when you own a home. There could be flood, tornado or hurricane risk, fire risk, or liability risk. There is risk that the neighborhood or region will depreciate in value due to neighbors not caring for their property, or increased crime occurring in the area. There is a risk that your town could suffer from economic loss if the primary industry there moves to another area. The city could approve commercial buildings or a freeway too close to your neighborhood driving down home values.
Just like you have different risks involved with owning a home, along with everything else in life, you have different types of risks in owning investments. It is unlikely however that these risks would keep you from buying a home, simply because you would first research the area and know what the risks are beforehand. By doing this, you can lower your risk.
Do the same with your investments. Know the risks beforehand. Then when you see the subtle signs that those risks are increasing, be proactive with your money.
Just like you would notice if the city approves a freeway nearby, you’ll notice that the interest rate trend has changed, or that the stock market is overvalued. How will you notice? You’ll notice because you’ll be paying attention, because your investment plan, just like your home, is important to you.