How to Minimize the Risk of Stock Investment, So It's Not Easy to Lose
Contrary to what novice investors think, the risk in stock investment is very reasonable. Novice investors should know that minimizing losses is part of a strategy for achieving high returns. They need to ensure that the risks involved will not eat into the returns that have been collected.
Check out the following ways to reduce the risk of investing in stocks so that Smart People can avoid big losses while at the same time optimizing your returns.
Stay away from stocks that are too risky
The risk of investing in stocks is generally proportional to the returns you get. The riskier a stock, the greater its value.
If you want to avoid losses, it means that Smart People also need to choose stable stocks over those with high risk. Even if the initial value does not meet expectations, satisfactory results will be seen in the long term.
Some of the high risk stocks include:
IPO shares (Initial Public Offering): these are shares of companies that have just issued their shares on the stock exchange. IPO is classified as risky because it does not have a track record on the stock exchange to be taken into consideration. In addition, the price of this new stock is also prone to drastic movements.
Penny stocks: In Indonesia, penny stocks can be equated with stocks worth a fortune in which some issuers have financial problems. These stocks tend to be less liquid, aka difficult to sell, especially because of the low prospects going forward.
Fried stocks: have the characteristics of price movements that tend to be wild. This stock has a low capitalization and the transaction looks very unfair.
Stay away from stock investment techniques with high losses
In addition to the risky stocks above, the following stock investment techniques also need to be watched out for. If you fail to earn returns with the following techniques, the losses that Smart People get can be multiplied.
Margin or leverage: money lent by brokers to investors to buy shares, with interest. The object being loaned can also be the stock itself.
Shorting: a technique of taking profits from falling stock prices. The losses obtained can be immeasurable.
Full time or day trading: this is an investment model that is made by buying and selling many stocks in one day. All day traders are never separated from losses, even the experienced ones.
Option: a contract that gives the right to buy or sell shares at a certain price before a specified date. The loss occurs if the contract that Smart People pays is not used at all.
Double check your decisions when the stock is down
There are two reasons why Smart People can lose when a stock is down: because Smart People don't sell it immediately or because they don't hold it. In this condition, cut loss can be a savior or even disastrous.
There are two possibilities for Smart People to make good decisions when the stock price drops.
First, Smart People can cash it out immediately because your time or investment target is nearing the end. Therefore, cutting losses becomes a logical thing so that the losses are not more burdensome.
On the other hand, holding falling stocks is considered good for investors who will still invest in the next few years. Most likely, the stock will recover as long as he is still investing.
Even so, the two decisions above could have turned detrimental.
Always check back on the decisions that Smart People make and adjust them to the company's intrinsic values. That way, Smart People can see whether a falling stock is worth selling or if it is a discounted price moment. Especially for the first case, do asset allocation if Smart People is nearing the end of your investment period or target.
Don't fall for the trend and invest regularly in stable stocks
Many investors are consumed by the desire to buy shares that are hotly discussed. In fact, they do not necessarily understand the growth prospects of these stock issuers. If the wrong trend is chosen, investors will be trapped once the price movement reverses against it.
Smart People should look for stocks from companies that are able to grow over the long term and survive the worst economic conditions. Generally, these stocks come from large capitalized companies.
Of course, the stock selection process needs to be based on a deep understanding of the company and the influences behind it. Finding this information is even easier in the era of online stock investment that is equipped with robo-advisor features like today.
If you have found the stock, invest your capital there regularly, for example every month.
By focusing only on a few stocks and other assets, your decisions will be more objective and far from emotional factors that often bring losses when investing in stocks.
Allocate assets
Asset allocation is the distribution of different investment assets in one container called a portfolio. These assets are generally in the form of stocks, bonds, and deposits.
The percentage of each asset is not the same and is influenced by the age and target investors. If the investor is approaching his old age, he reduces risk as much as possible by moving a large part of his portfolio to more stable assets.
The opposite applies to young investors who want to achieve large returns. Because the time is still long, it will be easier for them to invest a lot in stocks whose value fluctuates.
Furthermore, Smart People also need to diversify their shares into several different sectors or industries. This will save you once the performance of one of the stocks is bad.
Stock investment is not just a place to look for returns. Pressing risks to a minimum is also a major part that beginners often don't take into account. Therefore, studying stock investment knowledge is important so that Smart People can make the right steps when they are directly involved in the stock market.
source: rhbtradesmart.co.id/article/cara-meminimalkan-risiko-investasi-saham-biar-tak-mudah-rugi