Wednesday, 29 June 2011

Six methods to reduce your investment risk (Part 4 of 8)


[1] Choose shares of solid companies, preferably those that pay regular dividends: Unless you are a professional investor, it is advisable to avoid speculative stocks of small enterprises whose future is dependant on one single product or customer.

During periods of economic adversity, well-established companies whose products fulfil fundamental human needs tend to fare better than small undertakings.

[2] Never place more than 5% of your savings on a single investment: Even if you make a correct decision today, circumstances continuously change. The easiest way to minimize risk is to spread your savings into many different assets.

The rule of 5% implies that, over time, you should aim at having at least 20 different types of investments.

If you save money every month, it will take you less than two years to achieve this target. Risk reduction is worth the effort of researching 20 different investments.

Some of them will turn out to be outstanding places for your money, while others may deliver negative results. Since you cannot know in advance, you will be better off by spreading your money.

To be continued in the next post.

[Text: http://johnvespasian.blogspot.com]

[Image by goingslo under Creative Commons Attribution License. See the license terms under http://creativecommons.org/licenses/by/3.0/us]

Six methods to reduce your investment risk
(Part 4 of 8)


[1] Choose shares of solid companies, preferably those that pay regular dividends: Unless you are a professional investor, it is advisable to avoid speculative stocks of small enterprises whose future is dependant on one single product or customer.

During periods of economic adversity, well-established companies whose products fulfil fundamental human needs tend to fare better than small undertakings.

[2] Never place more than 5% of your savings on a single investment: Even if you make a correct decision today, circumstances continuously change. The easiest way to minimize risk is to spread your savings into many different assets.

The rule of 5% implies that, over time, you should aim at having at least 20 different types of investments.

If you save money every month, it will take you less than two years to achieve this target. Risk reduction is worth the effort of researching 20 different investments.

Some of them will turn out to be outstanding places for your money, while others may deliver negative results. Since you cannot know in advance, you will be better off by spreading your money.

To be continued in the next post.

[Text: http://johnvespasian.blogspot.com]

[Image by goingslo under Creative Commons Attribution License. See the license terms under http://creativecommons.org/licenses/by/3.0/us]