Protecting Your Money: Investment Risk Management in 2021
Risk, by definition, involves being exposed to danger. In the context of investment, risk is largely related to harm and loss in the financial well-being of a venturer. In some instances, a risk involving funds can be associated with a high level of confidence from the participants in a particular market outcome. Nevertheless, this condition is natural in investments, especially due to the constant changes in the market and its value.
Mores o in the year 2021, various global crises continue to cause a setback for investors. This includes facing challenges in the vaccine rollout, the geopolitics tensions between nations and trades that are not going away anytime soon, the tightening of the policy in the fiscal and monetary aspect, the emergence of the “zombie” economy, and the shock of the interest rate of the dollar. These present global risks, however, can be mitigated with appropriate long-term strategies.
In today’s era, balancing and diversifying an investment portfolio and being prepared with a contingency plan in case of unexpected downturns can help in saving your investments.
There can be a lot of investment risks harming your finances that you might face as you invest in various endeavors. This includes getting duped by organized fraud schemes or simply experiencing losses due to the market facing an unexpected downturn.
Typically, naive people are the most common targets of fraud, especially those who are novices of the financial field. On the other hand, those who have been on the scene for a while now face problems with unexpected results, even with an established portfolio.
Historic averages in long-term investments may provide guidance in decision-making involving investment risks. With the historical averages, however, it is difficult to know or even make predictions if the circumstance and the goals can be achieved. Often, even having a diversified portfolio of stocks does not guarantee the earning of a rate of return comparable to the historical average for a long period.
Hence, risk management is vital in controlling the practical adverse effects of the risks. Of course, it is not guaranteed that risks can be entirely avoided. However, with proper thorough management, investors can anticipate risks and make plans to overcome the challenges along the way.
Five Investment Risks in 2021
After perhaps a difficult phase endured in 2020, the future of investing might be brighter for those in the market scene. However, every year is always a new year for more cases of investment scam tactics. Nevertheless, with diligent risk management in your arsenal, you can overcome many more challenges, including fraud.
To give an insight into what to expect this year, here are five of the biggest investment risks in 2021:
1. Vaccine rollout.
The successful rollout of the COVID-19 vaccines on schedule is something the market largely hopes for. In fact, the majority of people are anticipating immunization by the summer, besides major countries like the United States and the United Kingdom. Phase three of the vaccine trials, on the other hand, are scheduled around November. This gave a major contribution to the strongest time for global equities in a span of over 45 years as the price of the markets spiked rather rapidly for the benefit of the global economy.
However, there is a possibility that the stock market may experience a pull-back in some of the gains if the adoption of the vaccine, its distribution, or its efficacy lag. This is due to the possible delay of economic recovery as a result. Various sectors have raised their concerns on the reliability of the rollout for widespread vaccination, which is an even larger operation. Furthermore, there is the belief that the market is not prepared for the return of potential lockdowns in the near future if the virus evolves.
This dependence, on the other hand, on the availability of the vaccines may also convince people to start heedlessly investing in emerging markets, only to end becoming victims of fraud. Indeed, the easiest to scam are those who are not prudent enough.
2. Geopolitical and trade tensions
The market may not face any incoming tensions in foreign policy for the year 2021, given the dive in the trade policy uncertainty. This uncertainty is based on the index provided by the World Trade Uncertainty count in 2020 from the Economist Intelligence Unit. However, there are still various hot spots that could spread throughout the market.
For instance, the issue of trade tariffs between the United States and China. Similarly, Australia and China have been having conflicts that could result in economic damage. Moreover, the Brexit issue of the U.K. can also provide dents in the economy and in the market.
3. Tightening of the fiscal/monetary policy
An easy policy may or may not come in 2021; either way, markets are certainly hopeful. This is due to the tightening of premature monetary or fiscal policies in some of the major economies around the world. In return, the restrictions may slow the recovery down and place a setback in the stock market. The same event happened when the global economy returned from the latest recession.
4. “Zombie” economies
The tightening of the fiscal policy can result in a drag on the growth of the economy from the numerous “zombie” economies. They are defined as those that have insufficient income to repay their debt payments. They have been kept artificially alive, however, by crisis aids.
5. Shock in interest rates
Unexpected inflation, the surge of bond yields, or the plunge in the dollar rates might result in high volatility in the stock market. The expectations for inflation are undeniably rising, and a breakout in a few years may result in tighter financial circumstances that will endanger the reassessment of the stock market’s value.
Mount Equity Group at Your Service
In this competitive market, investors have to be smart with handling their money in investments. With With Mount Equity Group, you are assured with outstanding risk management advice provided by our brilliant advisors.
Our company consists of a team of expert professionals who provide financial advice for investors and companies. We currently shelter over 2,000 clients, and we manage their portfolios, investments, and savings. Mount Equity Group offers a broad selection of financial services that are proven and trusted, and most importantly, we place our clients at the center of our solutions.
At Mount Equity Group, we rely on competence to ensure the successfulness of your financial future.
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