Investing on the stock market comes with risks… Here’s how to handle them

Julie Brownlee, Fsp Invest, 23 Mar. 2015

Tags: investing, investing on the stock market, risks, investing risks, stock market,

The overriding motive for investing on the stock market is to make money.

Over the long-term, investing on the stock market offers inflation-beating returns. But over the shorter-term, there’s the chance of market crashes and share prices falling.

So how can you deal with the risks of investing in the stock market?

Read on to find out…

How to deal with the risks of stock market investing

Before you put a cent into the stock market, you first need to determine:

  • How risk averse you are;
  • What you want to achieve; and
  • If you’re looking to generate an income.

To decide how much of your money you’re willing to risk on the stock market think about:

  • How much you can afford to lose if the market crashed;
  • How long you’d wait for the market to recover; and
  • How you’d cope if the market crashed.

By giving honest answers to the above questions, you can see how much risk you’re prepared to take on.

The golden rule of investing

The one thing you must always remember with investing is never to risk money you can’t afford to lose.

Never borrow money to invest. And never invest money that you need for something else.

For investing, you should use disposable income. You can work on building your portfolio over the years with this cash.

And before you put your money to work on the market, ensure you have some risk management strategies in place that can help to limit your losses.

For example, you could use stop losses on all your investments. This means if a share price drops to a certain level, you sell. Doing this allows you to know how much you could potentially lose in monetary terms from one investment.

As time passes, you should reap the rewards of rising share prices and receiving dividends.

So there you have it. Here’s how to handle the risks of investing on the stock market.

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