How to Mitigate Your Risk, Not Retain It

Contrary to popular belief, investing successfully and achieving prosperity and wealth doesn't require making risky investments.  In fact, consistently incurring high risks very often limits financial success.  When investing, you should mitigate your risk whenever possible.

Invest in Yourself

You are always your best investment.  Investing to increase your ability to create value in the world is always a sound decision.

• Read
• Go back to school
• Prioritize experiencing new things
• Attend educational seminars frequently

You, and the decisions you make, are your best risk mitigation tools.  Your success as an investor won't simply result from following so-called proven strategies, like diversification or dollar cost averaging.  Success, confidence, and prosperity result, instead, from knowledge and know-how.

Gain Knowledge – Lose Risk

Investing legend Warren Buffet focuses on education and knowledge.  According to Buffet, active investors should do three things each day: read, research, and think.

Buffet's formula for mitigating risk is straightforward:

• Know what you own.
• Research before you buy.
• Own a business, not a stock.
• Make a total of only twenty lifetime investments. 
• Make one decision about a stock and be a long-term owner. 

While a lot of investors idolize people like Warren Buffet, most don't take the time to invest in themselves.  They never work to gain a real understanding of industries and companies.  Instead, they either invest blindly in the same old diversified financial products or follow the market or the latest investment trend.  Either way, they retain high risk.

Mitigating Risk to Near Zero

Is it possible to mitigate an investment risk to near zero?  Sure.  Banks do it every day when they make loans. 

To do it, they:

• Check your credit
• Secure their investment with collateral
• Require a down payment
• Determine the interest rate, and the payment
• Determine the period of the loan (investment)
• Impose prepayment penalties
• Verify your work history and income
• Cover all of their investments with insurance
• Have an exit strategy that allows them to be profitable, or at least regain their capital in almost any scenario 
• Transfer their risk to the borrower wherever possible  

If you buy a house with the loan the bank gives you, and you default, they   have your house as collateral.  Where's your collateral in your stock and mutual fund investments?    

The fact is, most people who invest in products sold by financial institutions are not only accepting the inconsistent returns and opportunity costs associated with such products, those “investors” are accepting the risk that the institutions are transferring to them by design.  

So...are you investing like Warren Buffett or the financial institutions?  Are you transferring as much risk as possible, or are you unknowingly accepting and retaining all the risk?

Learn exactly where your liabilities and risks might be far greater than you imagined, as well as how you can improve your cash flow with our complimentary 7-Step Cash Recovery Analysis.  At the end of this 10 question analysis, you'll get an immediate, actionable insight into your finances.  The analysis is my gift to you; the only thing I ask in return is a personal commitment to yourself to take action on the insights you receive.