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Risk Aversion Strategies in Financial Investment

Thursday 25th September 2014

The big news of the moment is that Scotland has decided to remain in the UK. Of course, this means a lot of things for a lot of different people, but for investors, it shows that the Scotts are taking a rational, sensible approach to their economy. They understand that an economy is a fragile system that is vulnerable to change. This can be applied on a personal level; so if you’re an investor, it –more often than not– pays to avert risk.

Risk aversion strategies plan an essential part of financial investment, so read on below to discover how you can avoid the potholes along the road to financial success.

Standard Deviation: Understanding the Chaotic Nature of Financial Markets

Financial markets, just like any other complex system, are inherently chaotic. This chaos is an emergent property of the economy, and results from the fact that there are so many inputs to the system –i.e. everybody relies on money. What this means is that at any given time, the behavior of the system could change at random, and this is why investors make significant losses, as well as gains.

One of the best ways to combat this randomness in the behavior of the economy is to apply the technique of standard deviation to the history of the asset you’re analyzing to see how much the behavior of the asset deviates from the mean average. This can give you a better sense of whether the buying or selling of an asset is worth the risk.

Implement Finer Control of Your Future

Investment isn’t always about stocks and shares. Much of the time it is about bank accounts, bricks and mortar, and – for our purposes here – pensions. Regular pensions only allow you to draw out money at a fixed rate each month, but this doesn’t allow you to take control of the money that you’ve saved as and when you need it. This could lead to potentially tricky financial situations, but with a Self-Invested Personal Pension (SIPP) like the ones offered by JamesHay, you can access your money and use it to better your own financial situation. 

Fundamental and Technical Analysis: Both; not One or the Other

Investors in the know will probably understand the difference between fundamental and technical analysis. Unfortunately, what many investors don’t seem to realize is that relying on just one of these methods alone, isn’t good risk aversion. Use both in tandem to give yourself the best chances of making a sensible investment.

So there you have it: three strategies that can help you to avert risk when investing.

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Editorial Contact Details - Conor Shilling
0845 672 6000
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