Risk Management Strategies

You can never eliminate risk completely when investing in stocks, however, you can reduce it.

Diversifying your portfolio

One of the most effective ways to reduce risk is by diversifying your portfolio. This is the process of spreading your money over many different stocks so that you’re not over-exposed to any single stock. Owning a diversified portfolio that contains many different stocks is less risky than owning just one or two stocks.

Adopting a long-term investment horizon

This is another strategy that can help reduce the risk of losing money. In the short term, stocks can be highly volatile. However, in the long run, the stock market tends to rise. Generally speaking, the longer you invest for, the less chance you have of losing money.

Stop losses 

Stop losses can also be an effective risk management tool. Stop losses help minimise investing losses by closing out losing positions before large losses build up.

Adopting a broad asset allocation

Finally, adopting a broad asset allocation (the mix of different assets in your portfolio) is also sensible. Wise investors tend to allocate their money across multiple asset classes including stocks, bonds, commodities, and crypto, as this also helps to reduce overall portfolio risk.