Investment Strategies To Reduce Risks

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Financial markets move in cycles. It is unrealistic to predict when the cycles will occur, how long they will last and how deep or high they will go.

However, even with this lack of specific knowledge, risks can be potentially reduced by understanding how financial markets work. Use the timing and the diversity of your purchases to reduce the different types of risk. Long-term strategies, such as those described below can help.

• Dollar-cost averaging refers to the method of investing a fixed amount of money at regular intervals, typically monthly. Sometimes you will buy when prices are high and sometimes when prices are low. By following a consistent investment pattern, you receive more shares for each dollar when prices are low and fewer when prices are high.

  Although there is no guarantee of profit, dollar-cost averaging is a good technique to use, particularly for someone who does not have the time or knowledge to analyze and evaluate market fluctuations. In addition, it may help instill the "pay yourself first" discipline since you must make systematic payments. In fact, many financial institutions can arrange to electronically and automatically transfer funds from your bank account to your investment account.

• Value averaging focuses on the value of your investment rather than the cost. Instead of investing a set amount at certain intervals, such as $100 per month, you determine a dollar value for your portfolio and either invest or withdraw whatever amount is needed to bring its value to your determined goal. This strategy’s advantage is that you will generally purchase more shares at a lower cost, improving your return. Generally, this method works best with mutual fund investing rather than with individual stocks.



• Asset allocation is an important factor in managing risk. It involves diversifying an investment portfolio, so it will withstand market fluctuations. Gains in one area tend to offset losses in another. Since the market tends to grow, you could post slow and modest gains over the long term, keeping pace with inflation.

Remember The Basics

Basic rules of investing:

• Keep your goals in focus.
• Save 10 percent to 15 percent of your net income.
• Respect your risk tolerance.
• Diversify your investments.

You also need to diversify and monitor your investments and their returns to ensure that they remain on track with your risk tolerance. If your portfolio is not performing within your risk limitations and goal objectives, make adjustments that help you manage more efficiently.

Lastly, remember that building and implementing a solid financial plan now is the key to ensuring you will have a rewarding financial future.