5 New Lessons To Invest Safely

by Andrew McGuinness     Jul 16, 2019

The global recession of 2008 changed the world. Not only did it lead to a global economic spiral, it also changed the way investors thing about money and investments. Many old practices, rules, and lessons from the past were suddenly put into question, and everyone asked: is there a better way to do things? Here are five new lessons we have learned over the last few years that will help you invest safely:

1) Know How Much Risk You Can Stomach

After the smoke clears away from any recession, it’s important to stop and look at yourself and ask: how much risk are you willing to handle next time? After you have experienced a market crash like the 2008 recession, you learn something about yourself, in terms of risk and tolerance.

What was your behavior during the crash? Did you lock in losses by selling late, hold, or buy more? Think about the way you respond to every crash and use that to understand your risk tolerance with more insight. Are you willing to go through that again the same way, or do you want to do things differently?

2) Always Have A Selling Point

There’s no such thing as infinite growth. It can be easy to get swayed up by the hype of the latest growing trend, but trends that continue to grow beyond their value become bubbles, and bubbles eventually pop. With every investment, make sure to set a point at which you are happy with the gains and you immediately sell. Going beyond that is a risk that you are unprepared for.

3) Hold

However, we don’t always make the selling choice, and that’s understandable. If you find yourself holding onto an investment that has experienced massive losses, then it’s now too late to sell. True losses are only accumulated once the investment has been lost, as trading 101 teaches us.

Ride the losses, wait it out, and hold your investment until the market recovers. Bear markets have always proven to be followed by bull markets; every crash is followed by a recovery.

4) Leverage With Caution

The meltdown of subprime mortgages of 2007 forced many investors to run away from using leverage. Banks learned the hard way that loaning to people who couldn’t ever afford to pay back their loans and trading investments that weren’t fully researched were harmful to their business.

But leverage isn’t always bad. You can use it to avoid giant losses and get the most out of your returns, as long as you apply options properly. Options can give you the protection you need if it is used as a hedging strategy instead of speculation.

5) Diversify

In 2008, no matter how much diversification your portfolio had, you experienced major losses. This is because it was a global recession that hit every investment, regardless of the industry or market; there was no running from the losses no matter how well you diversified. Commodities, hedge funds, and bond markets all tumbled, and even the ever-reliable real estate market took a major hit.

Many lost belief in the need to diversify because of this, but the truth is it still prevented some losses for those with diversified portfolios. Not all markets experienced similarly-disastrous magnitudes of loss.

Adapting To The Evolving Marketplace

Learning new rules, lessons, and guidelines when investing safely is a big part of having a successful career as a trader. The world changes and so does the market, so you should always keep your eyes open and your ears to the ground, waiting for the latest trends in safe investments.

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