7 of 27

Write now Article Tools

Page 2 of 2

the available investment opportunities. The fund will hold a combination of shares, bonds and other types of securities. The advantage is that a loss on one element of the fund is likely to be offset by gains in others.

In essence, mutual funds perform all of the actions outlined in the other sections of this article, such as stocks and bonds, but under the control of one fund. A benefit of such funds, particularly for those who have little knowledge of the stock markets, is that they are professionally managed. They also produce income in the form of dividends and capital gains.

Placing some of your money in mutual funds will give you the excitement of investing whilst limiting the risk involved.

4. Cash

Cash of course is the least risky of investments as you can save it and withdraw the same amount at any time in the future. However, the value of cash is adversely affected by inflation and you need to ensure that the rate of interest received more than covers the current inflation levels. Nevertheless, it is advisable to keep a small amount of your investment portfolio in cash.

There is one other thing to remember about investments, and this is that there will be dealing or management charges made for the transactions. These need to be taken into account when considering any gain or loss made.

If I were a novice investor, looking to start on the stock exchange but wanting to minimize the risk, the following is how I would approach the project. I would place 40% of the money in mutual funds, 30% in stocks, 24% in bonds and retain 5% in cash. AS you become more experience and comfortable with the ways the markets works, these percentages can be adjusted to suit your growing level of expertise.

Learn more about this author, Paul Lines.
Click here to send this author comments or questions.

• << previous page
• 1
• 2

Add your voice

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