8 Ways To Reduce Your Investment Risk

Learn how to reduce investment risk and increase your return through the following ways and strategies:

1) Reducing risk through diversification. Invest in different types of stocks instead of buying only one company's stock.

2) Buy stocks from several different industries. Such action can protect you from industry risk, whereby all companies in a certain industry experience a major downturn.

3) Diversify beyond the stock market. Invest a certain portion of your portfolio in other types of assets like bonds, treasury securities, gold, commodities, etc. It is safer to invest in bond market which is the least risky of all the assets. This diversification helps to maximize your return, while reducing your risk since you are spreading your investments over different types of asset classes.

4) Reducing portfolio risk through global diversification. While U.S. market may be experiencing bear markets, the international markets may be exhibiting symptoms of bull markets.

5) Hedging is a very powerful tool to reduce risk within the stock market. Two of the most commonly used hedging products are options and futures. An investor with a large portfolio of stocks may want to use options and futures contracts as "insurance" to hedge against declining stock prices. Professional traders can buy put options when they wish to protect an existing long stock position.

6) Set aside some money to ensure you remain financially secure. If you do not have enough funds and you ever get into financial trouble, then you may end up selling all your stocks for less than the purchase price and make a loss. Therefore, make sure you set aside some money in a reserve fund in case there is an emergency. By doing so, you can protect yourself from losing money and maximize your returns in the long run.

7) Do some research beforehand. If you don't have a good understanding about a particular company, then you shouldn't risk your money on it. It is always better to do some research and get advice from those who are already investing in the share market. Good stock selection can maximize your investment returns.

8) Don't simply employ any investment strategy. If you do not fully understand the chosen strategy you must seek independent advice from your financial advisor.

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