Never risk more than you can lose

There are no 100% risk free investments.

afford to loseA quick online search will provide you with an endless amount of stories about people who took money that they could not afford to lose and risked it on something that they believed was risk-free and therefore didn’t use any type of stop loss.They lost the money, and it had a life changing impact on them – for the worse.

The consequences of you losing your invested capital should impact your exposure to risk. Would losing this money mean that you can’t pay rent and utilities this month? Would you have to sell your house? Would it force you to spend your retirement like a pauper?

In scenarios where losing the money would have disastrous consequences, strive to keep the risk really low. In some situations, where you know that you will need the money soon, it is best to just keep the money in a bank account covered by a national deposit guarantee or stash it in a bank box. Or pay your rent and utilities in advance. This is not money that you should gamble with. Never ever use money that you can not afford to lose to engage in binary options trading or any other type of high risk trading (Forex trading, CFD trading etc)

On the other hand, being overly risk-adverse with all your money is actually a risky move in itself. If you aren’t living hand-to-mouth, there should be some money in your budget that you could invest for the future.

If you convert all your assets into cash and stash the money in a bank box for fear of losing any of it, you don’t have much hope of it increasing in value. In most first world countries, inflation rates are non-existent to low right now, but even a low inflation rate will erode the purchase power of your money over time. When you need the money in the future, you might find that it isn’t worth much anymore.