High risk investments are those that can easily result into huge profits. Mike Patton from Forbes couldn’t have said it any better: The investment world contains many risks. As a general rule, the greater the return you seek, the greater the risk you must assume.
Having the potential to make huge profits also mean that the’s a possibility for huge losses as well if you’re unlucky. It’s just the way it works whether you like it or not.
This is where your responsibility does matter, you have to know how to manage your risks in order to be safe in this market. Your money is going to be on the line, it’s important that all measures are taken so that your investments don’t go down the drain.
From my experience I can tell you it’s an excruciating pain when you have to deal with the loss of a big portion of your portfolio. I don’t think you’ll want to experience that like I did on several occasions before I chose to do the right things.
How much of your portfolio should your invest in one stock?
It’s very debatable because most day-traders don’t have enough money in their portfolio to trade as this rule states. But let’s get to it so that you have an idea of how it works.
You’ll be surprised to see how many investors out there who don’t know how much of their money they should put in one stock.
The old quote states “Don’t put all your eggs into one basket,” which is a smart idea. But when it comes to stock trading some investors are usually choosing an amount of money to put into a stock while not knowing how much should it really be.
To answer that, the amount of your portfolio that you should invest into one stock shouldn’t exceed 2%. Many people would advise you to put 1% in one stock, but in this case it would be where you have a nice size of portfolio.
For example, if you have $ 25,000 in your portfolio you can risk losing $250 per trade, which is also 1% of your $25,000. Some investors may want to put more into one stock; nevertheless, it would be too risky to spend more than 2% though.
What to know about risk investment managements
There’s no investment that doesn’t come with risks, but you can play a huge role in managing your investments risk.
According to the Financial Industry Regulatory Authority (FINRA), when it comes to risk, here’s a reality check: All investments carry some degree of risk. Stocks, bonds, mutual funds and exchange-traded funds can lose value, even all their value, if market conditions sour.
Diversification is a must, investors are advised to diversify their portfolio across 12-20 different stocks. Again, that means you’ll need to have enough capital in your portfolio to be able to do so.
This can drastically decrease your risk of losing your money because you would always have the chance to win in some of them.
Some experts advise investors like us to pick our stock from diversified sectors. A sector as such would have less chance to loose your money if it get hit.
Although it’s important that to pay close attention to your investment risk you shouldn’t be too conservative. If you’re being too conservative there’s no way you’ll be able to reach your goal.
All investments come with risks, it doesn’t matter where you’re investing your money at. You should always be ready for the worst.
However, risk investment managements can help you tremendously. You should never ignore that unless you don’t care about your money.
Diversification is a must, always do that and you’ll see how much of a change it’ll bring into your portfolio.