Financial Literacy - How to Prosper
investing
Taking financial risks without regrets

"We made sure we were financially prepared, and that certainly kept me in the ballgame and probably gave me the next opportunity because I had to make sure that I had the money to pay my expenses for a full year," Butts says.

Even though her original business didn't work out, she was able to write a book which she then self-published. This led her to find other authors who want her to publish their books.

"I think people give up too soon. As soon as things get really rough, they bail. To me, the biggest risk I could have taken would have been not taking that first leap and starting the business because I would have missed out on a career that I really love," says Butts.

Investing

Nearly everyone will experience stock market risk at some point in their lives. It's practically inescapable. With the decline of pensions and the necessity of saving up bushels of money for retirement, you need a substantial return. That means taking risks, including that of losing principal, to meet your goals.

For most consumers, investing in equities is necessary just to keep pace with inflation. Otherwise, their money loses its purchasing power over time.

"People are more concerned with the stock market going up 10 percent or down 10 percent, but they need to be more concerned with what is going to happen in five or 10 years with inflation," says Dan Danford, principal and CEO at the Family Investment Center in St. Joseph, Mo.

Nevertheless, a loss of 10 percent or more can be unsettling. The best way to mitigate stock market risk is to make sure your money is diversified across a broad array of investments.

"The types of things you want to be diversified across are asset classes like real estate, commodities, fixed income and stocks. You also want to be diversified across size, like mid-cap, large and small; geography -- international, emerging markets and domestic, and style -- core, value and growth," says Wade Slome, Certified Financial Planner and president of Sidoxia Capital Management in Newport Beach, Calif.

Though investing doesn't have to be rocket science, it can be pretty intimidating for consumers who'd rather not have to learn anything about it. That's where more risk enters the picture -- if you end up following bad advice.

Many financial advisers or financial representatives at brokerage firms work on commission. So what is in the best interest of the client and what is most profitable for the adviser may be at cross purposes.

"There are a lot of sharks out there with many transaction costs and fees. There are fee-only advisers and I highly recommend people look into that because there are limitations on the conflicts of interest. Many operate under an RIA (registered investment adviser) and they have a fiduciary duty to make decisions that are in the best interests of their client," says Slome.

Consumers routinely misjudge risk when evaluating financial decisions.

The best way to hedge your bets is to be diversified in all areas of your financial life, keep plenty of savings for emergencies and work with a competent and trusted financial professional.

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