Protecting Your Assets: 3 Must-Know Risk Management Strategies
24 Dec 2019
Everyone knows that keeping your hard-earned dollars in a simple savings account isn’t a long-term solution. All that happens is that inflation outpaces any interest that you may earn on your savings. Thus, you just end up watching your dollars decrease day by day.
That’s why people turn to investment companies in order to have their money work for them and grow with the stock market. One facet of investing in the stock market, however, is a risk. In order to maximize gain, one has to minimize loss by implementing risk management strategies.
If you’re struggling to learn how to manage and mitigate your investment risk, you’re in the right place. In this article, you’ll learn three concrete risk management strategies that you can start implementing today.
The first step to portfolio risk management is to diversify. By allowing your investment portfolio to be majorly comprised of any single stocks, you open yourself up to lose a huge amount of money should that one stock ever crash.
Remember that even the biggest, most stable companies can have massive setbacks in as little as one day. Enron’s stock, for instance, became worthless overnight when its accounting fraud scandal came to light.
To minimize your losses in the event of such an occurrence, spread your net far and wide. Don’t fall prey to investing a major part of your savings into any one company that could let you down in the near future.
2. Leverage Stop-Loss Orders
Another great risk management strategy is to leverage stop-loss orders. The concept behind a stop-loss order is fairly simple, and the name of the order itself is fairly self-explanatory.
A stop-loss order is essentially when you tell your investment company to sell your position in a stock should it ever fall to a certain value. For instance, let’s say you bought into a company when it was trading at $100 per share. You think the share price might fall but you’re willing to wait and see.
You don’t want to lose any more than 20% of your initial investment, however. Thus, you set a stop-loss order at $80 per share. When the stock reaches that price, you’ll automatically sell your position to ensure that you don’t forfeit too much money.
3. Follow the Trend
This last general bit of investment advice can save your butt from high investment risk. Simply follow the trend. Take up positions that follow the trend of the market, and capitalize on its upturns and downturns alike. Especially if you’re not an experienced investor, don’t take positions in stock that are unlikely to pay off, no matter how high the upside in the improbable scenario that they do.
For now, be content to follow the trend of the market until you have a little more trading experience.
Risk Management Strategies Made Simple
There you have it — three concrete risk management strategies that you can leverage to save your portfolio.
For more risk management advice, be sure to reach out and contact one of our investment experts!