In the previous article, we had seen the various risks involved in stock investing, let us now drill down on the steps needed to minize the risks involved.
Knowledge - Lack of knowledge is the greatest risk involved in investing.One should get familiar with the concepts and parameters in investing before investing. Knowledge will not only help reduce risk but also helps create wealth in a significant manner. Before investing in any stock, analyze the company thoroughly.
Don't Invest - This may sound strange but it makes sense to stay away from a stock or sector if you don't understand how the industry/company operates. It is always advisable to invest in stock/sector which you understand better than those which you don't understand. Try to read more about a stock/industry to gain more knowledge. Even after investing, you should always track the stock's behavior/reaction to various events in the market.
Get your financials right - Have your buffered cash(3-6 times * monthly expense) always ready before investing. Go for investing only if you have a positive net worth. Have adequate term insurance for your life.
Diversify your investments - Don invest all your money in a single stock/sector. Invest in different types of instruments like debt,equity(mutual funds,stocks). Don put more than 10% of your investment in any one stock. Invest across various sectors and don go for sectoral funds or stocks.
Learn More : How to calculate insurance cover?