Investing with less risk?

Use risk mitigation

Is it possible to invest without running the risk of your investment losing value? We have to disappoint you, because there is unfortunately no such thing as 100% risk-free investing. Investing always involves risks. Even so, there are ways to reduce investment risks. But what are they? 

6 tips to reduce investment risk

  1. Make sure you’re well prepared

    Before you get started with investing, it is always a good idea to think about the following three starting points for investment.

    • What is my investment goal? Possible investment goals include your children’s education, capital growth or a retirement pension.
    • How much time do I have to reach that goal? Think about how far into the future you want to invest, such as 5, 10, 20 or even 30 years from now. 
    • How much risk am I willing and able to run? Depending on your personal situation, you can choose a low-risk, high-risk or medium-risk investment strategy.

    Based on your answers to these three questions and the research you have done yourself, we can select a matching investment product. Because at the end of the day, what matters most is that you feel comfortable with the choice you make.

  2. Only invest money you can spare

    Only invest money that you do not need for the time being and can spare for a few years. Make sure you always have a healthy buffer in your current or savings account for unexpected expenses. The Dutch National Institute for Family Finance Information (Nibud) has created a handy buffer calculator that lets you work out what would be a good financial buffer for you.

    If it turns out after calculating your financial buffer that you still have extra money that you will not need in the short term, investing may be an interesting option for you.

  3. Spread your investments

    Spreading investments ensures more even value development, often with less extreme highs and lows. 

    • Do not buy everything in one go
      Buy investments at different times over one or multiple periods. This means that you buy at different prices, allowing you to average out purchase prices. 
    • Spread your investments over different investment instruments
      Buy a diverse range of investment instruments, including shares, bonds or tracker funds, so as to be less vulnerable to concentration risk. Concentration risk is the risk you expose yourself to when investing in only one or a few investment instruments.
    • Invest in different industries
      Buy investments from different industries. If you invest only in oil-related companies, for example, you will be vulnerable to losses whenever the oil industry hits a rough patch. 
    • Look across the border
      Buy investments from different countries and continents to reduce risk when one particular country or continent is doing less well economically.
  4. Make investing a regular habit

    With a standing investment, you automatically invest a certain amount every month through our Guided Investing or Self-Directed Investing service, whichever you have chosen. Although your investment will then stretch further one month than the other, the subsequent price averaging means that you will be less sensitive to stock market fluctuations in the long run. 

    Given that you are automatically buying additional investments, your total invested capital will grow, as will your returns, if everything goes well. This is very convenient, because the investing basically takes care of itself .

  5. Keep it simple

    Futures, call and put options, hedge funds, swaps, turbos — the world of investment is full of fancy words and complex products. Mitigate your investment risk by knowing and understanding what you are investing in. You can get started with investing without complex products, such as by using ABN AMRO’s Guided Investing service. If you have savings upwards of €50,000, letting the experts of ABN AMRO Asset Management take care of everything for you is the simplest way to invest. 

    Keep reading and learning about investing, but whatever you do, keep it simple.

  6. Give your investments time

    One of the biggest challenges for any investor is to keep a cool head. How would you react when stock markets drop and your investments suddenly lose value? This is the kind of situation that could trigger a sell reflex. 

    But if you don’t need the money right away and you can wait, you might be able to prevent the losses you would sustain if you were to cash out in such a situation. Experience shows that stock markets rise in the long run. The longer you invest, the bigger the chance that the highs will compensate for the lows.

 

Find out more about investment risks

There are risks associated with investing. You could lose all or part of your initial investment. Read more about the main investment risks and how it works.

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