5 Ways to Reduce Risk

I want to talk about reducing risk. I believe in my heart to not invest money is to go broke safely. You simply can’t save enough for retirement. Bertrand Russell said, ‘to conquer fear is the beginning of wisdom’. All clients are afraid of investing; they are afraid of losing money. In order to trust you with their money, clients have to conquer or at least control their fear.

Watch the video or read the transcript below to learn how to address their concern about risk and explain you can reduce risk.

So explain to your clients there are five ways to reduce risk. The first two are most popular and they’re the worst two you can do.

#1. Take no risk

Number one: if you want to totally reduce risk, take no risk. Bury the money in a coffee can in the back yard. Then you’ve got no risk at all.

#2. Settle for low returns

The second way is to settle for low returns. Buy CD’s, buy bonds, get lower returns but relative safety.

#3. Let time work for you.

The third way in my opinion is the best way, but it’s the least popular. That’s to let time work for you. I’m not necessarily advocating ‘buy and hold’ versus asset allocation, I’m a ‘buy and hold’ guy. But if you let time work for you, it works in my experience.

#4. Diversify

‘If you don’t have the time, the last two ways will be right for you, Mr. and Mrs. Client’. The fourth way to reduce risk is to diversify. If you diversify, you can’t lose at all.

#5. Dollar cost average

The fifth way to reduce risk is to dollar cost average. Because if you dollar cost average, you can’t buy at the top.

In my opinion, of the five ways to invest, the best way is to let time work for you. You’ve got to invest your money. To not invest is to go broke safely.

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* This audio podcast first appeared on the Don Connelly 24/7 learning center, in the Best Practices section.

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