3 Strategies to Help Reduce Investment Risk

When the market begins to fluctuate, you may feel tempted to alter your investment portfolio. Yet history demonstrates that investors who commit to their investments even during market and economic downturns have a higher chance of seeing a profit over the long term. 

So, how can you prevent yourself from making impulsive investment choices? Think about these three dependable methods that, when combined with financial guidance, can make it possible to manage risk, lower the volatility of your portfolio’s value and perhaps provide more stable returns over time. Harvest Wealth Partners supports our clients as they pursue their financial goals. Visit us at an appointment to discuss your investment options. 

Strategy #1: Asset Allocation

Asset allocation is a term referring to how you divide your portfolio’s investments to pursue your financial objectives. Your risk tolerance, taxes and investment time horizon should all be taken into consideration when you make investments across a variety of asset classes, such as cash, stocks, bonds and alternative assets. 

Asset allocation potentially reduces investment risks by offering different levels of possible return and market risk. Of course, past performance doesn’t inherently mean certain results in the future, so asset allocation doesn’t guarantee that the individual will make a profit.  

Strategy #2: Portfolio Diversification

Portfolio diversification often goes alongside asset allocation. Portfolio diversification involves choosing several types of investments in each asset classification in an attempt to decrease one’s investment risk. A diverse selection of asset classes might also make it possible to lower the impacts of significant market fluctuations on your portfolio.

If a person invests in a single company’s stock, they face “single-security risk,” which can cause an investment’s value to vary greatly according to the price of one holding. Essentially, they take on more risk because they are depending solely on that company’s performance for their investment’s growth potential. Conversely, investing in stocks across 15 companies in different industries can possibly reduce the risks of a significant loss. Even if one investment isn’t bringing in the desired returns, a different stock may provide increased returns. It’s important to keep in mind that portfolio diversification does not eliminate all risk, nor does it provide guaranteed protection from investment loss. 

Strategy #3: Dollar-Cost Averaging

Dollar-cost averaging is a strategy that involves regularly investing a specific amount of money into the same channel, no matter the market’s performance. Imagine that you have $900 a month to invest in a certain stock. Regularly investing this exact dollar amount may make it possible to reduce the average cost per share, as well as timing-related risks. 

By using a dollar-cost averaging strategy, you will naturally buy more shares while the market is low and fewer when it is high. By taking this approach, it’s possible to slowly build wealth by varying the prices for the shares you buy, as well as lower your chances of making impulsive or emotional investments. 

Talk to a Financial Advisor Today

Harvest Wealth Partners are here to support you as you discover pathways to your financial goals. Call today to set up an appointment to discuss investment strategies and more. 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

Investing includes risks, including fluctuating prices and loss of principal.​ No strategy assures success or protects against loss. 

Past performance is no guarantee of future results. Asset allocation does not ensure a profit or protect against a loss. 

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. 

Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

This material was prepared by Nuvew Web Solutions.