How I Reduce My Investment Risk?
There are several types of investments you can make like long term ones or short term ones. Some investments can be in the form of stocks, shares, bonds, mutual funds, real estate, and savings. No matter what your investment is, the expectation is always there that you should get more returns. However, there is no type of investment that comes completely risk free. Some amount of risk is present everywhere.
However, there are ways through which you can reduce these risk factors. A lot of the precautions work well for shares and stocks. The DCA or dollar cost averaging technique is one of them.
When investing in stocks, the DCA technique ensures that higher priced shares are bought in smaller numbers and the lower priced shares are bought in higher numbers. This rule applies for just a month and every month is calculated individually. You are actually spreading the risks by investing in different types of stocks or shares. The profits always get maximized through this technique. However, the risk is when the time period is stretched.
The DVA or the dollar value averaging is another method used to cut risks. In this method the value of the portfolio and the sum total is increased by adding shares which offer greater returns. Using this method, the portfolio balance increases by a set amount immaterial of the way the market performs. When the market slumps, the investor ends up contributing more money and when the market performs well, the investor contributes less money. So, when the market is more the investor is actually contributing less and when the markets are higher the investor is contributing more. This method is preferred more by investors than the cost averaging method because the investment goes down since the value of the purchased share increases.
