5 Hidden Risks in Your Portfolio

Making good decisions when it comes to your investment portfolio means not only following the typical advice, but also learning to see all the possible risks. Here are five risks to think about that might be lurking in your portfolio:

Using Bonds to Manage Risks

Recently, bonds have taken a hit and are no longer a completely guaranteed way to hedge your bets. This is especially true if you're trying to get the highest yield bonds, which are now the least stable. Some investors have found that they can manage this risk by purchasing lower yield bonds in sectors that are inherently more stable.

Selling Too Late

By not paying attention or simply by waiting too long, some investors hang on to investments too long and end up losing a significant amount of money on their loans. When you get burned, you'll often wait too long to re-invest, which loses you even more money over the long run. Often, investment experts recommend setting up stop-loss orders, which will automatically sell off your assets when they drop below a certain value.

Lack of Decision Making

Many investors get into investing without a set plan, which can be a huge risk in their portfolio. Experts advocate for investing only with a written plan of action and goals. Otherwise, you're likely to make decisions based on snap reactions, which will end up costing you money and creating problems in the long run. Keeping your long-term goals in mind will help you make better decisions from the start.

Lack of Diversification

Even if you have your portfolio in several different types of investments, experts say that many investors don't have enough diversity in different markets and types of investments. It can be a good idea to become familiar with your own investments so that you can see if there's too much overlap between companies, sectors, or types of investment.

Not Accounting for Currency Changes

One final hidden portfolio risk is investing all your funds in investments that are based on the same currency. If the currency crashes, you'll have serious financial issues. Investopedia recommends diversifying your investments among foreign currencies to help hedge against this risk.

Building Credit While Starting an Investment Portfolio
Building an investment portfolio that handles risk well can help you build your credit and reach your long-term financial goals. Having an investment portfolio and assets on hand can help you build your credit by giving you more financial stability. If you have a lot of debt, you may be tempted to build credit by selling off assets to pay down your debts, but a better option can be using balance transfer credit cards to lower the interest rates on your credit cards in order to pay down your debts more quickly and efficiently. That way, you can hang on to your assets while still building your credit by paying down debt.

If you aren't sure how to minimize risk and maximize returns with your investment portfolio, you should talk with an investment professional. However, you should make sure you understand enough about your investments to accept risks, ask intelligent questions, and make good investing decisions on your own.

Daniela Baker is a personal finance blogger. Visit her blog at http://www.creditdonkey.com/ to compare credit card deals.