5 principles to lower your investment risk

Fsp Invest, 15 Nov. 2013

Tags: investment risk, how to lower investment risk, portfolio risk, risk, investing, investment strategy, reduce risk

When investing, it’s crucial you stay on top of risk affecting your portfolio. You don’t want to take on needless risk and suffer the consequences. But you can take measures to lower your investment risk. Read on to discover five principles to lower your investment risk…

There are steps you can take to reduce the risk of your investments, Dr Steve Sjuggerud in Investment U explains…

5 strategies to reduce your portfolio’s risk

These five reminders can do more than anything to keep your money safe and your investments sounds.

#1: Buy quality
In market downturns, you can reduce your investment risk by keeping in mind that dividend-paying blue chips hold up better than up-and-comers.

Large caps will do better than small caps. And value generally does better than growth.

If anything in your equity portfolio needs to go, look at your small-cap shares, unprofitable companies and other more speculative issues.

#2: Diversify broadly
Diversification has two advantages: It increases your chances of holding a big winner, and it leads to less volatility than holding just a handful of stocks.

#3: Asset allocate
Your asset allocation is your single most important investment decision. This is how you spread you investments across different asset classes.

#4: Follow our position sizing strategy
Never invest more than 4% of your equity portfolio in a single stock – at least initially. There’s nothing worse than having a serious dent in your net worth simply because one stock fell out of bed.

#5: Use a trailing stop to reduce investment risk
Whenever a stock falls back 25% from its high you should sell. This protects your profits or your principal amount.

This is simply a tool to cut your losses and let your profits run.

Looking over this list, you’ll notice there are no Fibonacci numbers. No urgent market signals. No prophesies of doom or euphoria. And that’s exactly the point.

The principles of successful money management have stood the test of time. They’re battle-tested. That’s why they’re principles not fads.

So there you have it, five principles to lower your investment risk.

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