20 of 27

Write now Article Tools

Why you should diversify your risk in investing:
Your approach to investing-and your management of your investments-should be driven by your risk tolerance. Risk tolerance ranges from aggressive to conservative, in 5 sub-divisions. Typically, the younger you are, the more aggressive you can be-and should be.
What is the difference between aggressive and conservative investments?

With an aggressive investment your chance of good returns is high. But, at the same time, your risk of losing your boots is also high. With a conservative investment, returns will be lower, but much more reliable-with little risk of losing everything. Remember too, that all investments fluctuate, in a typical sine curve. Try to time purchasing to the bottom, or near the bottom of the curve. If you decide to sell, wait until the investment is at or near the top of a curve.
How do you know your tolerance to risk? You may know it intuitively, but it is more likely to be established through a questionnaire. There is one available for download on my web site (see my profile).
How do you know which risk is attached to what investment vehicles? You can look at the listings in the media of share and mutual funds prices and returns. Be aware that you are looking at a snapshot-a moment frozen in time. So, if you are serious about investment, part of your commitment must be to study these listings and map trends for yourself.
Some sectors are lower risk than others-you can see that intuitively. For example, banking or financial services sectors are generally good, steady performers, leaning towards the conservative end of the market. Industrial shares and funds may give good returns, and some are rock-solid, but others may be less so. Money market funds are tied to currencies, and are just about as solid as you can get. But, money market funds are linked to the interest-rate. If it is high the returns will be higher. If interest-rates are low, these will not perform much better than keeping your money under the mattress.
Because every inflation fluctuates, the secret to a sound investment strategy is to smooth out these differences, so the mean of your total investment is as near a straight line as you can get it, with an upward slant, so you are watching your money grow.
How do you achieve that?
The answer is in the key word-diversification. You cannot achieve a smooth growth line with very few investments in shares or mutual funds. This article is about these sorts of investments only, but be

• 1
• 2
• next page >>

Add your voice

Know something about Diversifying your risk in the stock market?
We want to hear your view. Write now!