Risks are part of investing, as you know: “Investing has risks, you can lose some of your money.” With a good approach, you can mitigate the risks and increase your chances of success. This article will show you how to manage risk.
Diversification: Divide your investments
Diversification is a simple way to reduce risk. By dividing your investments across different types of investment products, regions, and sectors, you reduce the chances of a loss in one investment affecting your entire portfolio.
For example, instead of investing in one technology company, you can invest in the entire industry with an ETF or mutual fund.
Take a long-term view
Investing for the long term helps to absorb fluctuations in the market. For example, do you have a goal that is still a long way off, such as retirement? Then you can take more risk, because you have time to make up for any declines. For short-term investments, it is often better to opt for more stable investments such as bonds.
Keep your portfolio in balance
Due to changes in the market, the distribution in your portfolio may shift. Rebalancing means that you restore the original distribution by, for example, selling some stocks and buying more bonds. This way, your portfolio stays in line with your goals and risks.
Divide your investments across sectors and countries
Some sectors, such as technology and energy, are more sensitive to risk than others. By investing in different sectors and countries, you spread your risk. Investing in different countries also reduces risk, as the economies in each country may react differently to changes.
Also look beyond the Netherlands and Europe. Please note that when investing in other countries, you may invest in foreign currencies such as the Dollar. This means that you have to take exchange rates into account.
Opt for bonds for extra stability
Bonds can make your portfolio more stable, especially during times of market movements. They tend to be less risky than stocks and can help you mitigate your risks. Think of a mix of government bonds and corporate bonds, depending on your risk tolerance.
Stay calm and don't make impulsive decisions
When investing, it’s important to stay calm and not give in to emotions. Fear and greed can cause you to buy or sell at the wrong times. A disciplined approach will help you stick to your plan and avoid reacting to short-term fluctuations.
A balanced portfolio without complicated products
Managing risk in your portfolio doesn’t have to be complicated. Without the use of complicated products such as options, you can still be successful with a well-diversified, balanced, and stable portfolio. With diversification, a long-term plan, regular rebalancing, and a calm demeanor, you can build a stable and well-managed portfolio.
Disclaimer
The information contained in this document is for general information purposes only and is not intended to provide legal or other professional advice nor does it commit MeDirect Bank (Malta) plc to any obligation whatsoever. The information available in this document is not intended to be a suggestion, recommendation or solicitation to buy, hold or sell, any securities and is not guaranteed as to accuracy or completeness.
If you invest in any product, you may lose some or all the money you invest. The value of your investment may go down as well as up. A commission or sales fee may be charged at the time of the initial purchase for an investment. Any income you get from any investment may go down as well as up. Products may be affected by changes in currency exchange rate movements thereby affecting your investment return therefrom. The performance figures quoted refer to the past and past performance is not a guarantee of future performance or a reliable guide to future performance.
Any decision to invest should always be based upon the details contained in the Prospectus and/or Key Information Document (KID).
MeDirect Bank is a trading name of MeDirect Bank (Malta) plc, registered under company number C34125, MeDirect is licensed by the Malta Financial Services Authority to conduct banking activities in accordance with the Maltese Banking Act (Cap. 371) and investment services under the Maltese Investment Services Act (Cap. 370).