Reducing Investment Risk

No investor wants an undue level of risk.  Every investment involves a certain amount of risk, but there are certain strategies that can be followed in order to manage the risk and thus provide more confidence in the financial investment.
  1. Stay focused and stay on course - Everyone gets nervous when the market declines.  It’s important not to allow your emotional reactions to affect your decisions.  In a volatile or declining market the best defence to stay focused.
  2. Visualise the pyramid - Imagine your money is a pyramid.  The larger part at the bottom should go into low risk investments with the smaller portion at the top going into higher return investments.

  3. Ignore market noise - When there is a lot headlines about what is happening in the financial market everyone seems to have an opinion.  Always keep in mind that your investment strategies should be shaped along long-term objectives and never by short-term market attitudes.

  4. Think about acting - Until shares are actually sold, any drop in share price is only a loss on paper.

  5. Invest regularly - One way of reducing investment risk is to invest regularly.  That is, if prices fall the investor will buy more shares and when prices rise the investor will sell.  If you are investing regularly using what is known as dollar cost averaging, you will help to manage risk.

  6. Diversify - This means splitting your money amongst several investment options to reduce risk.

  7. Make sure you have cash set aside –Always keep some cash available so you don’t have to break into investments prematurely.

  8. How and when - Find out when and how you can get your money back if you ever need to.

Copyright 2005

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