With the stock market uptrend that began in March 2009 now showing serious signs of weakening, I wanted to write about Market Risk today. While the exact tops and bottoms of a trend in any financial asset are impossible to predict, there are simple strategies you can put in place to limit your risk to devastating market losses and reduce the chance of buying at the very top and selling at the very bottom. Market risk is one of the 9 types of risk that affects the value of YOUR money.
Knowing that financial security is a top priority, especially for women investors, I created a Financial Woman free Risk Check List outlining the 9 types of risk to help you make sure your money is safe. I also did a series of videos on risk this summer in my complimentary newsletter, Nest Egg News.(Receive a copy each Thursday a by putting your email address by the Money Flow chart.)
Remember, if your name is on an account with money in it or in an asset of any type, even in cash or invested in your home, you are an investor! Own that name, and show leadership around that role.
Below are the characteristics of market risk:
• It’s the most common type of risk investors associate with their investments
• It occurs when the value of an investment decreases due to a decrease in the overall market
• It’s often due to a change in the economy or another event
The risk of losing your money is beyond scary; it’s terrifying! The great thing about understanding any type of financial risk is that there are ways to limit the exposure your money has to each type of risk.
Risk reduction strategies for market risk include:
• An appropriate asset allocation; not having “all of your eggs in one basket”
• Checking the value of any investment before buying it
• Stop losses, which sell your securities when they reach a certain price
• Hedging; having assets that move in opposite directions
• Market timing techniques; more conservative long term or short term
If you invest your own money, this is a good time to make sure you have some “risk management” strategies in place to keep your money safe. If you work with a financial advisor, this is a great conversation to have with her. Financial women take proactive steps to limit the amount of risk their money has so they can live with financial security.