CAN YOU TAKE THE RISK!?
I believe that the 1st step to investing is understanding your Risk Preference. For me, Risk Preference is made up of 3 Factors: Risk Tolerance, Risk Capital, and Risk Adversity.
The risk is in most cases the hardest part of investing in the stock market. The actual thought of putting money, time, and energy into something that just might lose can be mind-numbing. But let’s be honest, what is life without a little risk. Taking a chance is what keeps our blood flowing and we all know the old saying “without risk, there is no reward”. But how much risk can you take, and do you really understand how to determine your risk preference.
So, let’s talk about Risk Tolerance. Risk Tolerance is the degree of variability in investment returns that an investor is willing to withstand. This is an important part of investing. Your risk tolerance is based on your appetite for risk, time-frame for investing, and investment knowledge. No one can decide your risk tolerance but you. It is usually gauged by a calculator or questionnaire, financial planners often use risk tolerance to categorize investors and investing styles as aggressive, moderate or conservative. Your risk tolerance will aid you in adding stocks to your portfolio that will prevent poor investing behavior by choosing the right investment mix.
When I began to invest, I didn’t understand my risk tolerance and every investment I made, made me nervous. That was the first sign that I was not making confident decisions. I do not know about you but when I would push the buy button I was concerned about my pick. Yes, I said “Pick”, because at this time I was “Picking Stocks”, kind of like cherry picking and hoping for the best. After understanding my risk tolerance, I was able to choose stocks that match my preference and make sound decisions on companies that I should or should not add to my portfolio.
Cannabis Stocks are very volatility and are exposed to Market, Political, and Regulatory Risk. In addition, to the risk, most Cannabis Stocks have a 4 year or less business inception, so the historical financial statements are often limited to this time-frame. By understanding your risk tolerance your preferences can help you make the right investment choices up front, rather than correcting later. In the Cannabis Industry, there are many penny stocks that are fine for very aggressive investors, where marijuana mutual funds may be a better fit for conservative investors.
Risk Capital is another factor when deciding the best stocks to buy or sell. This is defined as the investment funds allocated to speculative activity and refers to the funds used for high-risk, high-reward investments such as Marijuana Stocks. When I began to invest in cannabis stocks, I didn’t understand the rules are Risk Capital. I invested money that I didn’t really have to lose and was scared to implement strategies because I didn’t know what I was doing. After buying and selling at times that did not reflect my objective and losing money, I decided to get educated on how to invest only what I was comfortable with losing, set limits and protect profits all while exposing myself to a comfortable amount of risk.
So how much can you invest and how much can you afford to lose? Simple, review your budget and decide on an amount that you can comfortably invest every month. Risk capital should be funds that are expendable in exchange for the opportunity to generate outsized gains. It is money that can afford to be lost. Investors must be willing to lose some or all their risk capital. It should account for 10% or less of an investor's portfolio equity and should be offset with more stable diversified investments.
Risk-averse is the description of an investor who, when faced with two investments with a similar expected return, prefers the one with the lower risk. Many investors love the thought of having funds generating compounded interest in the forbidden Weed Market and have dreams of capital appreciation, dividends, and income dancing in their heads. But what about the risk factor? If you only want to see the upside and are uncomfortable with the downside than Cannabis Stocks may be the wrong place for your money. The Cannabis Sector is going to see many ups and downs before it settles into what is a stable industry. Now that more and more countries and states are going recreational most cannabis companies are trying to re-define their business model, regulatory obligations, and profit plans. The future of cannabis is unpredictable, so if you do not have the stomach to weather the storms is this industry, get out while you can. The next year will not be pretty, but we hope to see a light at the end of the tunnel. Therefore, so other options maybe be a better fit for your money.
Some risk-averse alternative to investing in the cannabis sector are traditional saving accounts and CDs. Risk-averse investors can take assurance knowing that government agencies, such as the Federal Deposit Insurance Corp. (FDIC) and the National Credit Union Administration (NCUA), partially insure funds held in savings accounts. The downside of keeping money in a savings account is the return; most high-yield savings accounts provide a lower return than most other investments. You decide what is best for you; Risk Vs. Reward?
Stating simply, it is a measure of the level of uncertainty of achieving the returns as per the expectations of the investor.
Here are 4 Steps to help you with your risk preference in the Cannabis Sector:
1. Choose which companies to add to your portfolio by reviewing the company’s financial statements, stronger companies with will be able to weather the upcoming storms.
2. Determined your portfolio mix, the percentage of your investments that will be cannabis companies.
3. Identify your appetite for risk and use market and limit order to set boundaries on your losses.
4. Diversify in the Cannabis Sector, consider CBD, Medical, Recreational, and Ancillary companies to invest in.
An accomplished Financial Advisor for 20 years, Cimone began to examine the medicinal and economic benefits of Cannabis Industry and how it impacts communities. She recognized the Cannabis Industry as an opportunity to build wealth and healing for anyone willing to learn and put forth the effort. TO watch webinars, book 1-on-1 Courses, and Workshops & Other VENTURES HEAD TO: ccimonecasson.com (Facebook @ C Cimone Casson ) To receive emails and updates on the Cannabis Industry join our Newsletter: http://bit.ly/COOCNEWSLETTER .