Reducing investment risks

The overriding emotions that govern how individuals make decisions in regards to their investments are fear and greed. It is for these reason everyday investors should educate themselves on how to properly invest rather than solely rely on the advice of brokers and advisors.

Decisions based on fear stem from the concern of not wanting to lose money, while decisions based on greed result from a desire to make money now. In a volatile market, these emotions can be amplified, particularly when the investor lacks the knowledge and understanding required to manage the investment.

Historically it has been proven that people with the right education are more successful and achieve better returns in the share market than those with little or no knowledge - because as the saying goes, wealth is the transfer of money from the uneducated to the educated. Given this, it is wise to gain a solid education when it comes to trading the share market so that the investor is prepared to manage their psychology and the investment in any market condition.

While seeking professional advice may seem like a wise choice, many people are lulled into a false sense of security when it comes to dealing with brokers and advisors. They believe they are dealing with someone who has more wisdom and knowledge than they possess on their own. In the majority of cases, however, these professionals are paid a fee or commission to sell product, which means the educational value provided is limited to towing the company product line.

Advisors do have a role to play, so I am not suggesting that an investor shouldn’t seek professional advice, but if they do I always recommend they question the advice and under no circumstances should they rely on only one person for this advice.

Many investors are willing to spend valuable time listening to their advisor, to determine the next best investment. But when it comes to educating themselves, they never seem to find the time. If the desire is to take control of your investments, the best option is to get a solid education from a reputable company that specialises in share trading education. This way you are equipped with the knowledge and understanding to make an educated decision.

In the financial services industry, people with little or no experience give their money to advisors who also have little or no experience, other than to recommend product. All too often this results in the advisor getting paid handsomely while the client has to suffice with average returns.