Are stocks inherently risky or is there a way to do it low-risk? Is it feasible to just hold a share and then have it add to my income without worrying much about crashing?

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Posted by Yu Zheng (MONEY FORUMS: 4, Answers: 1)
Asked on March 1, 2016 11:51 pm
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Great question! Risk is something that we can manage. We cannot eliminate it but we can position our investments to be less subject to volatility, and hence less subject to loss of principal. One way to reduce risk is through diversification, the classic idea of not having all your eggs in one basket. If you own a single stock and it declines significantly in value, then you take a big hit. If you own multiple stocks then you are less impacted by the performance of one – less chance of loss, lower potential upside as well. Owning a basket of securities narrows the range of expected returns, you decrease the chance of extremes in both loss and gain.

For a beginning investor the simplest way to invest in a pool of securities to reduce the risk of only having one stock is to invest into a mutual fund. Even mutual funds vary in risk, so it is a good idea to do your homework. The best place to start is what the purpose of the investment is. One thing this does is clarifies the timeframe of the investment. The longer the timeframe the more risk most investors are willing to take; in a long timeframe short-term losses can be recovered.

There is a lot of great information to help you get started here on CentSai. Browse around and see what our bloggers, experts, and other users recommend. And ask more questions here in the question and answer forum. A well though out investment plan can make your dreams a reality. Learn and do, gain from the experience of others here who have gone down this road before you.

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Posted by Peter Neeves (MONEY FORUMS: 1, Answers: 59)
Answered: April 10, 2016 1:52 pm
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