How smart investors manage and minimise risk

Posted by Andrew Nicol on 09/01/18

Anyone who tells you there’s no risk to property investing is trying to sell you a lie. When investing your money, there is always a risk that something could go wrong or that you’re forced by your circumstances to sell at the wrong time.

But – and this is a huge BUT – don’t let that put you off. Everything in life is a risk when you think about it. Leaving your home is risky, so is getting into a car or crossing the street or eating food, but we do it anyway.

Investing is only as risky as you decide to make it. There are many precautions you can take to mitigate potential risks and ensure that your portfolio remains secure for your family.

1. Understand the risks

Whether you’re looking at property or the stock market or any other type of investment, it’s important to understand exactly what you’re risking and what can go wrong. Property can be a volatile market (which means that prices fluctuate wildly, so there can be huge gains or huge loses). It helps to understand that:

Prices and values can change in the blink of an eye, but over a long period of time, the market should return a positive result.

You don’t realise gains or losses until you sell up and pocket the cash. If you hold your property through a market downturn, you’ll most likely see gains on the other side.

Everyone has a different risk profile, so you should make sure the strategy you’ve chosen aligns with yours. That’s why at OPES we take the time to evaluate your personal circumstances, as well as your risk portfolio, and advise you on a strategy that works for you.

2. Get clarity and visibility

Everyone and their hamster has advice on investing, and it’s not uncommon for you to hear five different opinions on the same thing. That’s why it’s so important to have an advisor or mentor who you trust. You need someone who can lay out all the options, help you measure the pros and cons, and give you the resources you need to make sure you understand enough to make your own decisions.

It is your money after all, so make sure that you always get the last say, and justify advice with your own research.

3. Stick to the strategy

Houses are so intrinsically tied up in our sense of home and safety that even when we’re looking for investment properties it can be hard to separate our emotions from the cold hard facts. But more often than not, the right properties for your strategy aren’t the prettiest ones.

It helps to go into each transaction with a hard plan in place, and a set of criteria that any new property has to meet.

It becomes much easier to set the emotions aside and simply tick the appropriate boxes. By only choosing properties that fit with your strict criteria, you reduce your risk of being exposed to issues by properties that deviate from your strategy.

Risks are common to everything we do in life, including property investment. The key to acting despite the risks is to fully understand what you’re jumping into, focusing on your strategy over emotional attachments, and making sure you have the right team on hand to give you an unbiased view of the situation. If you get that right, then you place yourself in the best possible position to achieve your dreams.