How to Stay Safe When Investing

Investing always carries risk. If there was an investment asset that could provide you with concrete, knowable upside and no conceivable downside, everyone would invest in it. Accordingly, investors need to do their due diligence before putting their money into any asset or opportunity.

What are the best strategies for staying safe when investing?

Legal Protections

Do keep in mind that certain investment schemes are patently illegal. Though this discourages many activities, it's not a perfect form of protection.

According to the Law Office of Jason A. Volet, people and institutions are victims of financial and investment crimes on a regular basis. While many of these victims have a hypothetical legal path to recovery, it's not always possible to recover lost assets. Because of this, it's important to exercise your own caution and due diligence as an investor who wants to protect their assets.

High-Level Planning

Investment and estate planning at the highest level can help you shield yourself from the greatest risks. You can plan how you want to invest, how you want to balance your portfolio, and identify your own personal red flags and quantify certain risks. If you have a broad investment strategy in place, you'll be in a much better position to make safe decisions for your own investing.

Due Diligence

The most important aspect of your investment approach is arguably your due diligence. In other words, you need to thoroughly research and vet your investment opportunities before you engage with them.

There are many items to investigate in the course of your due diligence.

These are just some of the most important ones:

Type

What type of investment is this? What are you actually going to own by purchasing this? If you're not exactly sure, that's a massive red flag.

Recognition

How much public and historical recognition has this type of asset received in the past? While there are certainly novel investments worth considering, well-regarded and historically tested assets tend to be safer and more reliable. These are things like stocks, real estate, and bonds.

Broker/source

You also need to consider the source. There are many reliable brokerage firms and financial institutions that make it a point to only offer reasonably vetted options to their customers. Investing with a stranger in a back alley typically isn't as safe.

Financial details

Always ask for financial details before investing in anything. If you're investing in a company, ask to see profit and loss statements as well as financial projections and other documents. If you're investing in something like crypto, review the overarching strategy and vision documents. Be on the lookout for anything suspicious.

Leadership

Who's offering this investment opportunity? What's their stake in the investment opportunity? How much experience and knowledge do they have, and do they have a track record of success with other investments?

History

You should also review the history of this investment type – and this specific opportunity. While historical performance isn’t always a good indicator of how an asset will perform in the future, it can give you more confidence in the relative safety of your decision.

Portfolio Balancing

You also need to make a concentrated effort to diversify and balance your portfolio. Diversifying an investment portfolio means having many different assets of many different types, so you can balance out the advantages and disadvantages of those assets.

For example:

 

Domains

You can choose assets of different domains to shield yourself from any significant risks that might occur within a single domain. For example, you can make sure only a portion of your portfolio is invested in stocks, so if there's a massive stock market crash, only a portion of your portfolio will be compromised. Even within the realm of stocks, you can invest in many different types of industries, so any single catastrophic industry event isn't likely to disrupt your investments.

Risks

You should also balance your portfolio according to risk. Some of your investments are going to be riskier than others, and some of them won't even have calculable risks associated with them. If only a small fraction of your portfolio is associated with potentially risky, uncertain ventures, you can keep your losses relatively small.

 

Returns

Similarly, you'll need to think about potential returns. In many cases, less risky assets and holdings are associated with a proportionally smaller return. If you want to make sure your portfolio continues to generate significant dividends and interest, you may need to make some calculated risks in your holdings.

All types of investments are associated with at least some risk, but you owe it to yourself and to your financial future to keep those risks under control. As long as you practice due diligence and maintain a diversified, properly balanced portfolio, you can minimize your risk exposure and stay safe as a competent investor.