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a high degree of risk if you do.

Tip 6: Dollar Cost Average into your Investments : Plan to invest systematically. invest at regular intervals monthly or quarterly. This will help you average a lower net cost over time and will reduce your risk of buying at the wrong time.

Tip 7: Diversify with Mutual Funds: Mutual fund investments reduce your risk because they are a diversified investment. When you buy a share of a mutual fund you are buying an interest in the hundreds of companies and related industries that the fund invests in. For small investors, a portfolio of stock and bond mutual funds achieve excellent diversification at a low cost. Investments should also be made in foreign stock and bond mutual funds. Also, mutual funds that invest in natural resources like silver, gold, and oil can provide even more stock market diversification with an inflation hedge.

Tip 8: Diversify with Stock and Bonds: A diversified portfolio should have both stock and bond investments. A stock or bond portfolio of investments in individual companies would require an investment in many companies across different industries to achieve proper diversification. Investors with large sums of money generally would use brokers or financial planners to achieve this diversification.

Tip 9: Keep some money in Money Market Funds : Keep some money in money market funds or cash. If the market dramatically falls you will be able to invest at the discounted price.

Tip 10: Reallocate Annually: Review how diversified you are on an annual basis and make adjustments accordingly. The beginning long term conservative investor, should use dollar cost averaging to invest in stock, bond, and mutual funds to attain a diversification of 40% domestic stock, 10% natural resource stock, 10% foreign stock and bonds, 20% domestic bonds, and 20% cash. With experience, you can adjust the allocation to fit your risk tolerance.

If you follow these ten tips you will have diversified your risk in the stock market. This will allow you to relax and profitably enjoy the rewards of long term financial investments.

Learn more about this author, James Smith.
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