Every human being in this world is programmed or brought up in such a way so as to always prioritize a risk free solution that can fetch growth. But when you come to the stock market you can’t omit the factor risk as every stock in the share market is associated with risk exposure ranging from low to high.
You can only reduce the risk factor in the stock market by following certain preventive measures to reduce the loss in the stock market. While investing in the share market, you should always analyze the history of the stocks as it will help you to choose the best performing stocks wisely.
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There are certain factors that act as do’s and don’ts in the stock market, you should be aware of these factors as it will help you to reduce the risk exposure on your investment in the stock market.
At first, let’s discuss about the do’s that could help you to reduce the risk exposure in the stock market.
DO’S IN THE STOCK MARKET TO REDUCE RISK:
- DIVERSIFY YOUR PORTFOLIO:
While investing in the stock market, you should prefer to diversify your investment portfolio as it would reduce the risk when compared to investing in a single sector. When you select to invest in diversified asset classes it will help you to reduce the impact of major market swings in your portfolio.
- ASSET ALLOCATION:
Asset allocation is an investment strategy that allows an investor to balance the risk reward. It’s achieved by adjusting the percentage of each asset in an investment portfolio. When you strategize the asset allocation consider allocating the investment on stocks and bonds in a respective ratio that fetch you a better return at lower risk.
- DOLLAR-COST AVERAGING:
Dollar-cost averaging is a disciplined investment strategy that helps an investor to smooth out the effects of market fluctuations in the investment portfolio. In simple terms, the average cost of your shares will usually be lower than the average price of those shares. This could help you avoid making emotional investment decisions.
DON’TS IN THE STOCK MARKET THAT INCREASES RISK EXPOSURE:
- EMOTIONAL TRADING:
Never invest in a stock based on its emotional value as it will increase the risk factor. You should always analyze the performance of the stock in the future for profitable returns.
- TIMING THE MARKET:
When you try to time the market it will kill the returns from your stocks. Successfully timing the market is extremely difficult as institutional investors have also failed to time the market.
- LOVING A COMPANY:
If you chose to invest in your lovable company despite its performance there is a higher probability of risk. Your lovable company should be performing well in the market or else it could lead to misfortunes.
OVERCOMING THE RISKS:
Overcoming the risks in the stock market is not a big deal! You can reduce the risk by conducting technical and fundamental analysis on the stocks as it will help you to choose the best performing stocks based on its future scopes. Hence, if are investing in the stock market follow two rules, 1. Analyze the Stock! 2. Diversify your Investment!
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