The following are a few important tips to help you minimize the risk involved in investments.
1. Balance your investment portfolio. Asset Allocation or Balancing involves investing in different types of asset classes that is Cash, Stocks/Shares and Bonds. Asset Allocation or Balancing reduces market risk such that for example, when bonds are not doing very well stocks and cash can be depended on to reduce market risk.
2. Diversify your investment portfolio. Diversifying refers to investing in many companies within the same asset class. Diversifying reduces overall portfolio risk and maintains a good yield such that when the stock of say company A is not doing well the effect is reduced by the good performance of company B etc. This is the same as not putting all your eggs in one basket.
3. Try mutual funds. To minimize the possibility of choosing the wrong stock one can decide to invest in mutual funds where they will make the choice on your behalf. However before making any investment decisions careful considerations and thorough research needs to be done regarding the mutual funds. Most of the time there are management fees, which may reduce investment returns.
4. Focus on investing for the long haul. Most investments fair well when held over longer periods of time therefore start investing early (at a young age).
5. Choose high quality investments. Invest in stocks of companies that show a probability of doing well in the future. This requires a thorough research which can be done through the use of non-commission based investment advisors who are not inclined to recommend certain stocks just so that they can get paid.