A Quick Guide To Reduce Risk In Stock Investment

In the family of investment instruments Stock investment is often looked at with certain amount of suspicion. It doesn't get the love as the traditional investment mediums like fixed deposits, real estates and gold get. In India, only 2% of our enormous population invests in stock market. It is a clear evidence of resistance in the minds of people for stock investment.  

But the real picture is quite contrary to the people's perception. Over the years, stock market has produced handsome returns for the investors. So in case you wish to join this prosperous minority; here are few point which will ease you way in the stock market.

  1. Understand The Market And The Types Of Investments.

If you are a rookie investor, then first thing you need to do is to learn about the market, as much as possible. There is a lot literature available online or in print. Do some research on trusted investment forums. Take baby steps in the market by learning about fundamental stuff like what is a stock, what is dividend, what is investment allocation, etc. One can also start browsing through the books of famous investors like Warren Buffett and Rakesh Jhunjhunwala.

  1. Learn The Value Of Diversification

In your initial phase as investor, it is important to understand the importance of diversification. It is your best and the most reliable tool to fight the volatility and uncertainty of equity market. Your portfolio should have a perfect mix of blue-chip stocks as well as mid and small-cap stocks. The reason one has to allocate funds into various stocks is that market keeps going through its upward and downward swings, and it is next to impossible that all your stocks picks are going to work according to your expectation. So, if some of your stocks don't perform, others will make up for the losses. Risk management is the key advantage of diversification.

  1. Don’t Try To Beat The Market

Not just new investors, but seasoned investors usually face losses because they try to go a step ahead of the market. It is not advisable to do everything that others are doing. For smart investment one has to do a lot of research and analysis. Hence it pays to flow with the current instead of against it. As the initial phase of investing is filled with excitement and confusion, the new investors are better off playing under the guidance of veteran investors who can watch out for them. Another critical reason to play safe is the risk management.

  1. Stay Away From Derivatives (FNO)

Derivative, known as futures and options, is a form of trading. Some considered it the fastest way to lose your money. Derivative trading is such a risky business that not only new investors but even seasoned traders get hoodwinked by it sometimes. For rookie investors to invest in FNO is an act of self destruction. On several occasions, ace investor Warren Buffett has said that the derivatives are the instruments of mass destruction. Thus, in order to make your investment risk free, or at least, less risky, it's imperative to stay away from derivative trading.  

  1. Pay For Good Advice

One of the most important steps to reduces risk in your investment is to get assistance from the experts. Stock investment is a complex matter. To add to it, the jargon-ridden language, its confusing tables and graphs are quite difficult to understand. To turn this situation on its head subscribe to a good stock advisory firm. Stock advisory firms provide multibagger stock calls and assistance on fund allocation. It helps a great deal to minimise risk at the same time it puts you a step ahead in your investment as the supervision of stock analysts save you from making rookie mistakes.