Risks are inevitable and can occur at any point in an investment. To the stock market, and other investors, risks refers to the potential loses that might take place, in response to certain predicted events and possibilities in the financial market. However, here are 8 ways to mitigate the risks in different markets:
This is especially crucial after employing the concentration risks- which means after you invest your asset into one sector if the theme is under a loss, then your investment goes down the drain. To prevent this from happening, one of the best solutions is diversity and investment in various stocks of companies. Even if one of them goes to a toss, you could still gain profit from the remaining.
Rate sensitive sectors
Inflation risks always affect the equities, and the bonds, and they’re directly related to the interest rates. Higher the interest rate, higher the risk and risk factors. If the rate rises and you’re invested in the bonds, then you’re probably under a debt or worst case scenario- a loss. Hence, if you’re in equities you can tweak your exposure by investing in rate-sensitive sectors like the NBF Cs, banks, auto and realty etc
Portfolio against currency risk
The companies that you invest in, are often vulnerable to the currency risks, and this can affect drastically on your investment. For instance, the auto IT and pharmacy industries dwell on the foreign dollars or currencies and the sectors like the power and telecom are strong importers which benefit from the rupee. The best way to hedge your risk is to mix the dollar defensive, and also the rupee defensive.
Whatever you’re invested in- either bonds or equity, it’s not going to eliminate the risk factors. Hence, one of the easiest ways to reduce the risk is to take a long-term and systematic approach. Choosing a long-term plan cancels out the volatilizes and evens out the potential losses.
Low-impact cost name.
The risks and the factors becomes all the more risky when you do not have an exit plan or the market becomes extremely volatile. In crashing markets, you cannot do much however in normal markets, these risks can be avoided by sticking to low impact costs stocks.
It is directly related to the investment decision and has nothing to do with the market. It is imperative to structure all your investments depending the horizon of your liabilities because if you invest in liabilities which are just three years away, then you could end being a victim. Reinvestment risk
You cannot create much wealth in reinvesting the money in different sectors and markets, especially not beneficial in the long run. An alternative to reduce the risk is to reinvesting in return instead of new plans.
IT is referred to the volatility risks, especially in the stock market and can be avoided by forming a well-informed decision.