4 Ways to Manage Risk in Your Portfolio

With the S&P 500 making new all-time highs on a weekly basis, many investors are starting to get nervous about stock prices. While no portfolio is entirely risk-free, there are several ways that every investor can keep risk in check.

Here are four common ways to manage the risk in your portfolio.

1. Diversification

The simplest, most effective way to reduce risk in a portfolio is to own many different types of investments. In this case, the old adage “don’t put all your eggs in one basket” holds true. Apple Inc. (NASDAQ: AAPL) stock is up 2,700 percent over the past decade. However, due to bad timing and lack of diversification, Andy Zaky somehow managed to lose millions of dollars because of his risky options bets on Apple.

As any shareholder of BP plc (ADR) (NYSE: BP) back in 2010 after the oil spill might know, disaster can strike the best of companies. Even diversifying within a given sector, such as owning a basket of ExxonMobil CorporationChevron CorporationConocoPhillipsRoyal Dutch Shell Plc (ADR) and BP, can be better than owning a single stock. However, by owning stocks in several different sectors and by diversifying outside of the stock market all together (bonds, gold, real estate, etc.), the risk of any single mistake completely wiping out your account is minimized.


Read the rest of this article (and all my other articles) for free on Benzinga by clicking here


Want to learn how to trade the stock market? Or maybe you just want to be able to look sophisticated in front of your coworkers when they ask you what you are reading on your Kindle, and you’d prefer to tell them “Oh, I’m just reading a book about stock market analysis,” rather than the usual “Oh, I’m just looking at pics of my ex-girlfriend on Facebook.” For these reasons and more, check out my book, Beating Wall Street with Common SenseI don’t have a degree in finance; I have a degree in neuroscience. You don’t have to predict what stocks will do if you can predict what traders will do and be one step ahead of them. I made a 400% return in the stock market over five years using only basic principles of psychology and common sense. Beating Wall Street with Common Sense is now available on Amazon, and tradingcommonsense.com is always available on your local internet!