How to Minimize Stock Investment Risk

How to Minimize Stock Investment Risk

The price of a stock can also reverse direction quickly so that the risk of experiencing a loss is more significant than other investments. No wonder stock investment is classified as a high-risk, high-return investment.

The question arises, how to minimize the risk of investing in these stocks? This time we try to summarize some strategies to apply if you want to dive into stock investing.

How to Minimize Stock Investment Risk

  • 1. Use "Unused Money"

    In investing in stocks, it is impossible to make a profit because the stock price fluctuates every day. From this fluctuating situation, sometimes the price is difficult to predict whether it will make an uptrend (bullish) or vice versa (bearish), so it is necessary to know how the long-term stock investment strategy is.

    With a long-term strategy, the way to minimize investment risk is to use cold money. The meaning of hard money is money that You will not need for something within a certain period.

  • 2. Start Investing with Small Funds

    There is a saying that the best teacher is experience. That is what is illustrated when you dive into the world of stocks to understand how the right strategy in investing in stocks will not be enough if you only learn from mentors or the books we read.

    We also need to practice by experiencing what the experience is like. By going directly, we will feel the difference from what a book or mentor teaches, such as mental and psychological. You also need to know how to buy and sell shares with small capital to minimize the risk of investing in stocks.

  • 3. Long Term Investments and Incremental Buying

    In principle, investing in stocks is actually for the long term even though most capital market players are for a short time or commonly referred to as a stock trading strategy. It will be very risky if we invest in stocks in the short term because it is not sure that the investment results you make in an issuer can be profitable according to the target price and the estimated timeframe that you originally planned.

    Another key is that the risk of investing in long-term stocks can minimize the risk of investing in stocks by buying in stages. A stock investor, at a minimum, must also know about technical analysis. Suppose about the point of support and effectiveness of resistance.

  • 4. Recognize and Analyze the Company Sector

    As an investor, apart from your obligation, namely analyzing the fundamentals of an issuer in shares (company), which is no less important, you also have to study the sector's conditions and sub-sector of the company you want to invest in.

    The company's condition can also influence the factors that cause good or bad stock price performance. For example, the sector is still under pressure due to falling coal prices in the past few years. This condition impacts the share price of coal companies where the price performance is not so aggressive.

  • 5. Optimize Stock Diversification

    Diversification of shares is one way to minimize the risk of investing in stocks. By diversifying means buying not only one share of the issuer but dividing it into several shares. Good ways of diversifying include:

    • Manage the number of stocks in your portfolio and not too many. Usually, three to 5 companies are sufficient.
    • Take stock from a different sector.
    • Allocate more funds for better companies and cheaper valuations

How? Do you already understand how to minimize the risk of investing in stocks? If this article is helpful, please recommend it to friends, relatives, or family who support in-stock instruments.