How to invest professionally?

How to invest professionally?
How to invest professionally?

Risk management

When you invest, you are exposed to some risks. With secured bank deposits, such as accounts on the time deposit book, you face the risk of inflation, which means that you can not earn enough money in time to keep pace with the rising cost of living.

Under unsecured investments, such as stocks, borrowing bonds and OPCVM shares, the investor risks losing the value of his investment. This can happen if the price falls and the investor sells for less than the price he paid at the time of purchase.

If you know the types of risks you may face, choose the risks that you are willing to fight. And you understand how to create and balance your portfolio to compensate for any losses, if you manage the investment risk for your benefit.

For many investors, it is better to manage risk by creating a diversified portfolio with many types of investments. This approach allows at least to increase the value of a portion of investments over a given period over the medium or long term. Therefore, positive results can be achieved even where the profitability of other investments is weak.

- Types of risk:

Systemic risks:

Systemic risk is also known as market risk and relates to factors that affect the economy in general or financial markets in particular. Systematic risk also affects all businesses, regardless of their financial position or capital structure. Here are some of the most common systemic risks:

  • Risk Ratio: Risk of impairment of a bond due to changes in interest rates.
  •   Risks of inflation: The risk of rising prices of money and services, and thus rising costs of living and which reduce purchasing power.

The risks of inflation and price risk are closely linked because interest rates generally increase with inflation. For this reason, inflation risks can reduce the value of your investments.

  • Liquidity risk: The risk of being unable to buy or sell bonds quickly and at a price closer to the real value of the bond. Sometimes you can not sell the bond in the absence of buyers. Liquidity risk is generally high in consensual selling markets and small equity markets.

  • Non-systemic risks:Unlike systemic risk, non-systemic risks affect only a few investments. It is linked to investing in a particular product, enterprise or sector. Some examples can be mentioned:

  • Specific risks: Also known as entrepreneurial risks, due to the impact that bad management decisions, internal frauds or even externalities can have on the standard achievements of a contractor and consequently affect the value of investments in this company. Even if you have carefully analyzed an investment before investing, and even if it looks strong, there is no way of knowing that the competitor is about to launch a superior product in the market. It is not easy to predict a financial or personal scandal that will blow up the structure of the enterprise, its prices on the stock exchange or the scrapping of its bonds.

  • Non-payment risk or credit risk: The probability that the issuer will not pay the interest as expected or repay the capital at maturity.

  • - Risk assessment :
Good knowledge of the risks of investing is important. But how do we know in advance what are these risks that you are willing to fight or are not prepared to fight? There are three basic steps for risk assessment:

1 - Understanding the risks of certain categories of investments:

The first phase of an investment risk assessment is to understand the types of risk that a class or group of investments may offer you, called the Asset Section. For example, stocks, bonds, and liquidity are considered as distinct asset classes because they develop your savings in different ways. Therefore, each asset class has certain risks and can not offer the characteristics of other departments. If you understand these risks, you can take steps to mitigate these risks.

2. Identify the type of risk that poses the least problems:

The second stage is to identify the type of risk you can take at a given time. Although it is seldom possible to avoid all investment risks, the objective of this stage is to determine the level of risk appropriate to you and your situation. Your own decision will be due to:

  • Your age;
  • Your goals and timetable for achieving them;
  • Your financial responsibilities;
  • Other financial resources.

3. Valuation of specific investments:

The third stage is to evaluate the specific investments you expect in the asset section. It is important to remember that investment risk management not only determines what and when to buy, but what and when to sell as well.
You can follow this approach alone or with the help of an investment expert in these areas.

- Adoption of a comprehensive vision:

Although previous record achievements do not guarantee future profitability, past analysis remains an important tool that can draw your attention to the kinds of losses that you should be prepared to address. It provides the necessary awareness to manage your risks. Analysis of the past can tell you which asset classes have the highest profitability and the average return.

Another way to assess investment risk is by staying abreast of market developments. For example, investment experts who know that an enterprise is being inspected by the trusteeship regulator can decide that it is time to sell the bonds owned or owned by their clients in their own accounts. In addition, political unrest in a given region may increase the risk of investment in this sector. And since you do not want to exaggerate your reaction, you do not want to take risks that you do not have the full knowledge of.

- Investment to reduce risk:

While some investors accept a high level of risk by investing in gold or real estate, most people seek to reduce risk while achieving sufficient profitability. If this is your approach, you can expect two basic strategies for basic investment: asset allocation and investment diversification.

Asset Allocation:

When you make an allocation of your assets, you decide on the basis of the main percentage, which portion of your total portfolio you invest in different asset classes, generally stocks, and borrowing or treasury bills. You can make these investments either directly by buying individual bonds or indirectly by selecting funds that invest in these bonds.

Asset allocation is a useful tool in systemic risk management because different categories of investments interact in different ways as economic and political conditions evolve.

If your portfolio includes different asset classes, you can increase the likelihood that some of your investments will generate sufficient returns, even if the losses or profitability are very low. In other words, you can reduce the risk of large losses that could result from focusing on one part of the assets, no matter what the issuers of the bonds of this section.

Diversification of investments:

When you diversify, you divide the funds you have allocated to a particular class of assets, such as equity, to different classes of investments that belong to the same asset class. These small groups are called subdivisions. For example, when it comes to the stock category, you can choose sub-categories based on a different capitalization of the stock exchange: investing in large corporations, in funds they invest in, medium-sized companies or funds they invest in, or investing in small businesses or funds they invest in. You can also include bonds issued by companies representing different sectors of the economy such as technology companies, manufacturing companies, pharmaceutical companies and public service companies.

If you buy Borrowing Bills, you can choose the Borrowing Bills for different exporters, the State or the State-Secured Borrowing Bonds or Special Borrowing Bonds.

- Risk Measurement:

You can not measure risk by rating it on a scale or comparing it to a standard. There is one way to put investment risk into context, known as risk reward in the case of equity or risk reward in the case of bonds, and is based on a cost-benefit assessment compared to the cost-effectiveness of a risk-free investment.

Is there risk-free employment? The closest employment is treasury bonds. It is considered the reference to assess the risk of investment in shares for two reasons:

 Short-term, which significantly reduces the risk of reinvestment;
 Support from the State which effectively eliminates the risk of non-payment or credit.
Long-term Treasury bills are a standard for credit risk assessment by corporate borrowing bonds. Although both are exposed to inflation and market risks, Treasury bonds are safe and have no credit risk.


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