5 Ways to Minimize the Risk of Investments

1. Diversify

Diversification is the most crucial element in sound investing. It’s the practice of spreading your money among several types of investments.

You want investments in different types of industries and sectors. And you want more than just stocks. While they are great for long-term investing, bonds, CDs, and high-yield savings accounts are generally more stable and should also be part of your portfolio.

You can even consider alternative investments such as currency, commodities, or real estate. Money in these various asset classes can shelter you from the storm of fluctuation in any one area.

2. Allocate Your Assets

Okay, you’re diversified, but exactly how much money should you have in various asset classes? It’s a balancing act that depends on your goals and timeline.

If you are young, you have a longer time horizon for investing and can stand to be heavier in stocks since you have time to endure the dips. Older people with a shorter investing timeline may want more short-term stability with CDs and high-yield savings.

So, it would help to consider how you want to use your investment money, set your goals, and balance the assets in your portfolio accordingly.

3. Do Your Research

Before you make any investment decisions, you should know what you are getting into.

Find out what a company does and how it generates income before you buy their stock. Review financial statements to check for balances, cash flows, and debt. Read company quarterly and yearly reports, and see what analysts are saying.

If you are investing in assets such as bonds, CDs, or savings accounts, compare historical rates of return, and consider how they measure up to inflation.

StockMarketEye’s software is an excellent research and comparison tool. You can track your portfolio, create watchlists, and get stock alerts all in one place.

4. Stay Informed

Even when you’ve organized your investments properly, you need to keep up with market news.

Economic occurrences can move fast. An oil embargo, bank failure, or outside events such as a war or pandemic can change the prospects of an investment, especially in the short term.

Similarly, when the Fed moves interest rates, you can count on a knee-jerk reaction in the market.

Follow the financial news on sites like MarketWatch or go online to engage with investment communities and read blogs that follow the market. Whatever your approach is, make sure your sources are reliable.    

5. Manage Your Emotions

While you should follow the news, it is important to keep an eye on the bigger picture.

It’s tempting to overreact to a sudden dip in the market or a trending meme stock. If the Dow falls by 500 points in a day or even 1,000 points in a few days, don’t panic. It amounts to only a few percentage points and is not that uncommon.

“Buy when there’s blood in the streets” is an old adage. It illustrates that a long-term investor with a balanced portfolio should look at market slumps as opportunities rather than reasons to worry.

Consider that a 10% to 20% slump may simply be a correction to an overvalued market. So, don’t start cashing out when the market swoons. Keep cool, stick to your goals, and maintain your long-term investment plan.