Tips to Reduce Risk by Investing in Stocks

By January 11, 2019
Tips to reduce risk by investing in stocks

Investing in stocks is riskier than a deposit, but they can also offer better performance. There is no guarantee that we will not lose money, but we can do a lot to reduce unnecessary risks, for example, diversify our portfolio correctly.

The first thing that we will have to do to gain confidence is to learn about how this market works to better cope with the ups and downs that may occur in the prices of securities.

Take the Risk:

The actions are only part of an intelligent savings plan. Smart investors balance risk with the incorporation of other types of assets into their portfolios. With this they try to reduce the violence of the ups and downs in the prices, looking for a constant profitability, that is to say, that a sudden decrease in the quotation of some assets are compensated by increases in others.

The actions can help you to make your portfolio improve its performance . The combination with bonds, real estate investments, etc. they will protect you against inflation. You should also try to choose assets that do not have a high correlation to avoid that all move in the same direction before the swings of the prices.

Manage exposure to Risk:

Some investors use a rule to decide how much they will invest in the stock market. It consists of subtracting the age to 100 and investing the remaining percentage in shares. If, for example, you are 30 years old, the percentage destined to invest in shares should be 70% and 30% in assets without risk (in general, they would be bonds).

Nowadays, this rule could be used as an approximation, but not everything is so simple. Many more things come into play in your investment decision, such as your personal and family situation, your financial goals in the short, medium and long term, etc. You can also take help from any financial advisor like Dwayne Rettinger Investors Group who are working hard in order to save their clients from any financial risks. Dwayne Rettinger is a Certified Financial Planner having experience of more than ten years of helping his clients make sound and fair financial decisions.

Study all the options:

Today you can invest and choose the securities you want to make up your portfolio. You can also choose other alternatives in which the shares play an important role.

The advantage of ETFs against funds is that they are quoted in a similar way to stocks and we can easily follow their evolution.

The main benefit in both cases is that the operation is simplified since we will not have to select individual values ​​by ourselves.

If you opt for these alternatives you must take into account the associated costs. In the funds it is fundamental to study the commissions with which it counts to be able to evaluate if it suits us or not to participate in it.

Rebalance your wallet:

Suppose you decide to put 60% of your savings in the stock market. As time passes, some of your values ​​will go up in price and others will go down. Therefore, that 60% with the passage of time will change.

At least once a year it is necessary to adjust or rebalance your portfolio to correctly maintain the asset allocation that we have set.

Control emotions Novice investors often react emotionally to changes in the market. If, for example, before a sudden drop in prices you undo your investment, it is likely that you can lose the profits derived from a future rise. Remember, you are not in the stock market to speculate, the investment must be long term.

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