Deccanexpress online: New Delhi. Most investors do not know the true meaning of risk. Investors who are very cautious (Conservative Investors) see risk everywhere. At the same time, aggressive investors only run after returns. They feel that they can face all kinds of risks. However, the concept of risk is not so simple. Investors are often not aware of their risk-taking ability. If this is known, then investing in risky options can be avoided by going beyond the risk-taking ability.
- Diversify your investment
Diversify your investment portfolio. There is no uniform risk on investment in every asset class (gold, property, stocks, and fixed deposits). By adding different types of assets to the portfolio, you can reduce the total risk to a great extent.
- Invest this wayFor example, suppose you have invested 30% in stocks, 20% in insurance, 30% in fixed deposits, and 20% in real estate. Therefore, if the stock price falls, your loss is limited because 70% of your investment is elsewhere.
- Monitor regularly
Many times the investment portfolio you made a year ago does not work according to the current market situation. In such a situation, if you do not monitor your investment from time to time, then the risk of investing on your portfolio can increase. Thus, it becomes important to keep an eye on investment holdings. You have to evaluate them on time as it helps in getting your portfolio back in proper asset allocation and in turn helps in mitigating the risks.
- Identify your risk appetite
Everyone has the ability to take risks while investing in the market. While investing, a person should set the risk limit according to his age, income, dependents etc. Investors are often not aware of their risk-taking ability. If this is known, then investing in risky options can be avoided by going beyond the risk-taking ability.
In case of fluctuations in the position of the investment, the risk can be reduced by redeeming the investment according to reducing or limiting the loss. Accordingly, strategizing proves to be an effective way to reduce risk. However, this increases the cost of investment and may reduce the returns.