ALWAYS TAKE A CALCULATED RISK

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As a follow up on the article ‘What is your exit strategy?’ let us take a look at why there is a general perception that investing is risky. Investing per se is not risky. What is risky is the investor not knowing what he or she is doing. Most investors have no clue what they are doing. They hear a rumour that a certain market is booming and they want a piece of the action. They jump in first and learn later – usually the hard way. In an age where instant gratification is valued above due process, we are always looking for a short cut.
Rather than learn the ropes, understand fully what we are doing, start small and keep learning more as we go along, we make a big jump based on half-baked advice and expose our investment to unnecessary risk. In short, we take a naked position. By leaving your investment or asset in an exposed or naked position, you put it at risk of loss. Online, if your website or system is naked (having inadequate firewall or strong password protection), a hacker can spot the opening and strike. If your earthly belongings are naked (uninsured), in the event of a loss (fire, flood, theft etc.), you not only suffer the loss, but also face the fact that you have to spend your own money to replace them, money you would have used for something else if you were covered.
In the world of investment, those who invest naked get slaughtered when the market does the unexpected – crash. Experienced investors take a covered position or invest with insurance. They protect their investment from loss due to market downturns. They know that the market is never static. It hardly stands still. It is always moving up or down. Even in the real estate market where the trend is generally up, they have a plan when things do not go as planned – e.g. there is a vacancy, tenants don’t pay, the property remains unsold etc.

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