Portfolio risk is a major risk that every investor should be aware of before investing in the different asset classes. Each investment within a portfolio carries its own risk, the higher potential return means higher risk.
Portfolio risk can be eliminated by successful diversification; holding the combination of investments doesn’t mean it helps to get you a better return or lower your risk. Investment in different asset.
- Ways to mitigate risk to your portfolio
- Diversify your investment: – When you diversify your investment in different asset class your risk falls and lower your risk on the overall portfolio. For example, suppose you invested 20% of your investment in fixed deposit and 30% in real estate or the stock market. Now if due to market bad condition your 70% investment breaks down but on the other side investment in fixed deposit going to be safe and will protect your portfolio from going down.
Besides your financial goal, you should diversify your investment so that if one sector goes down then the other sector can help you to protect your loss. Diversify helps you to smoothen your return.
- Handel asset allocation properly: – Asset allocation is not all about investing in assets, debt, and cash. Assets allocation also depends on age, risk appetite, income, savings, and financial goal. Thus asset allocation is not all about equity and debt but it’s also about your situation and financial situation, which plays a big role. For example, when a financial advisor gives advice it became different for 35 yrs old person and 50 yrs old person. The advice became differ to differs according to the age group, future plans; whether they are single or married, etc.
- Monitor your investment regularly: – At the time of monitoring your investments, you have to keep remember that an investment done years ago might not work according to the current market situation. So you have to keep track of your investment regularly and modify it according to the current market situation this helps your portfolio to minimize risk. Most of the time SEBI registered stock advisory company helps and monitor your investment on your behalf so that you don’t have to check it regularly and you can concentrate on your different task.
- Investment through the rupee cost averaging method: – Rupee cost averaging method helps the cost you buy stocks or mutual funds average out. With the help of this method, you can get a higher number of units when the market is down, and gets the least number of units when the market is up. To take benefits from the rupee cost averaging method you need to keep investing with SIP (Systematic Investment Plan). That helps to beat the volatility factor and helps you to grow your investment portfolio.
- Identify your risk tolerance capacity: – Every investor has different risk tolerance according to age, income, dependence, etc. According to that, every investor should know how much they have to invest while investing. Most of the time investor takes more risk compared to their risk tolerance. This will affect their portfolio when the market is downwards. Understanding your risk tolerance is necessary because this will affect your portfolio in the long run.
- Maintain adequate liquidity: – Maintain adequate liquidity and accessible assets while you have invested 30-40% of your investment. At the time of the downfall of the market, these liquid and accessible assets will help you to access cash for emergencies and at the time of needs. Keeping some liquid assets can let your higher volatility products produce the intended outcome by being invested in them for the long term.
Conclusion: – These are the all points an investor should keep in mind before making a portfolio. While Brighter Mind Equity Advisor helps the investor to make their portfolio with lower risk and great capital appreciation.