When you invest, you hope that your money will generate an income for you or that it will grow in value and allow you to realise a profit in the future. However, there is a possibility that your desired investing outcome may not materialise; you could instead receive an unfavourable result.

While you happily envision what you stand to gain, before you commit your funds to an investment you also need to consider what you could lose if you were to make the wrong decisions. It’s critical to assess how any adverse outcomes could harm your financial position and negatively affect your goals.

When you put your money to work for you, one of the possibilities is that you could lose some or all of your money if the venture fails. There is also the risk that your investment may not perform as planned, or that you may not get the kind of returns within the time frame that you had anticipated.

Although risk is an inherent part of the investing process, you can still seek to minimise or prevent some of these negative occurrences. Let’s look at some of the strategies that can help you to protect your investments from the risks of loss and unmet objectives.

Invest with understanding

If you had a pile of cash, would you light it afire or flush it down the toilet? When you invest without finding out how the venture works to generate more money, or without knowing the risks that have to be taken to produce this return, you are wilfully taking a chance that could wipe out your money.

Your first line of protection is to educate yourself about the process of investing and to learn about the negative results that accompany different forms of investing. Your objective is to know exactly what you are getting into, so that you can make informed choices with your money.

If you want to be a successful investor, you should devote time to reading books and other material that can help you to learn the basic terms and concepts. Attend seminars or watch television shows about investing, and ask financial advisors to explain the workings of different investments.

Balance your investments

Once you are aware of the risks that could arise from an investment, you need to consider if the level of risk is worth the return that you hope to make. You also need to decide if you are financially capable of absorbing the risk, and if you are emotionally comfortable with putting your funds at risk.

You can reduce your risk factor by allocating your money across different investments which may have varying danger levels. So, you could keep more money in less risky options that may produce lower returns, and place a smaller amount in investments with higher risk and possibility of return.

You should also try to match your investments with your financial goals. For example, if you need to cash in your funds at any time, stick with investments that are liquid and secure. A licensed advisor can help you to create a diversified portfolio of investment options to meet your objectives.

Hedge your risks

Some potential risks may be completely outside of your control, so you need to analyse your investment to see how best you can recover if the negative eventuality occurs. Be proactive in finding ways to hedge against the risk, which will allow you to restore your position quickly.

For example, if you are investing in your own business and you depend heavily on one major supplier, you could lower your risk by seeking out alternatives to obtain the required product or service. Don’t wait for the problem to happen before you devise the appropriate solution.

With a stock investment, you can ask your broker to liquidate your holdings if the share price falls below a certain amount to prevent significant losses. More sophisticated investors can opt to purchase hedges for their investments that will actually allow them to profit from a negative event.

Monitor investment performance

Successful investing requires you to pay attention to your portfolio or business venture on a consistent basis. When you monitor your investments’ performance you can observe trends that may indicate that challenges are ahead, and make decisions to preempt the potential issues.

Establish a schedule in which you review important metrics such as interest rates and market prices for financial investments, or the profit position and cash flow of your business. You also need to monitor movements in the industry or environment in which your investment operates.

So, if you realise that a stock company is losing significant sales to a large competitor, you may want to reduce your share holdings. Similarly, if you are concerned about a company’s ability to service its debt, you may want to sell your bond before the contracted maturity date.

Despite your best efforts, you may still make a loss on investment or receive a disappointing result. Instead of giving up on the investing process, use the negative occurrence as a learning experience that can guide you into becoming a wiser and wealthier investor in the future.

Copyright © 2015 Cherryl Hanson Simpson. No reproduction without written consent.

Originally published in The Daily Observer, March 26, 2015

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Cherryl is a money coach and business mentor, and founder of Financially S.M.A.R.T. Services. See more of her work at www.entrepreneursinjamaica.com and www.financiallysmart.org. Contact Cherryl