How to manage investment risk in today’s digital world
BY MOTOLANI OSENI
There was a time when trading, particularly on commodities exchanges, took place in loud, fast-paced trading floors dominated by a select group of seasoned professionals. Access to such markets was restricted, highly specialised, and filled with layers of intermediaries.
Understanding the dynamics of risk and reward was a rare skill, often reserved for a few insiders who could decipher the complex movements of the market.
The digital age, however, has revolutionised this landscape. Investment opportunities have become more accessible, democratising entry into the financial markets. Yet this increased access has also drawn in many participants with limited understanding of the risks involved in various asset classes. While the barriers to entry have lowered, the need for financial literacy and informed decision-making has grown significantly.
Each type of investment carries its own degree of risk. A key aspect of smart investing lies in understanding these risks and aligning them with personal financial goals, risk appetite, and investment timelines. Today’s investors must balance safety, expected returns, and liquidity before deciding where to allocate their funds. Recognising how different investments fit into these categories can help investors manage risk more effectively.
READ ALSO: Delta most peaceful state for oil, gas business in Nigeria –Gov’s Aide
Broadly, investments can be categorised by risk level. Low-risk investments prioritise capital preservation and tend to generate modest returns close to or below inflation. These options typically exhibit minimal price volatility. Medium-risk investments offer slightly higher potential returns but come with moderate price fluctuations.
High-risk investments expose investors to greater price swings and a higher chance of capital loss, but they also offer the possibility of higher gains, particularly over a long-term horizon. At the far end are speculative investments, characterised by extreme volatility and driven more by sentiment or news than solid fundamentals. These can deliver dramatic gains or losses and are generally best suited for experienced investors with a high risk tolerance.
These risk categories can be observed across various asset classes. Treasury bonds and money market instruments tend to be low risk, while growth stocks and Real Estate Investment Trusts (REITs) are typically more volatile. Even within commodities, there are varying risk profiles.
Physical precious metals or commodity ETFs backed by tangible assets are considered low risk. Diversified ETFs that track multiple commodities might fall into the medium-risk category. At the higher end of the spectrum, options on commodity futures are complex, time-sensitive, and high risk.
Fortunately, digital tools have not only opened up the investment world to more people, but they have also made it easier to access information. Modern trading platforms provide research materials, risk assessments, and learning resources that allow investors to make better-informed decisions. Alongside the evergreen advice of portfolio diversification, doing your research before investing has become one of the most effective ways to manage risk in today’s market.
A few important questions to consider include: What is the asset class I’m investing in, and what are its typical risk features? How volatile is the asset’s price? What’s the potential downside, and how quickly might losses occur? What trends or fundamentals drive price changes in this asset? And how long can I afford to lock in my money?
By taking the time to answer these questions, investors can become more confident, informed, and better prepared to take advantage of opportunities as they arise. In the digital age, managing investment risk is no longer the preserve of experts—it’s a responsibility and opportunity within reach of anyone willing to learn.
