Anticipating and Mitigating the Risk in Stock Investing

They said that a business involving stocks is a risky business. That is true. In fact, however, all types and kinds of business have inherent risks. Risk is always involved either when robbing a bank or selling beauty products. The point is that businesses have risks. 

In stock investing, the risk is clearly identified. Of course, money-wise, there is no other risk other than the risk of losing the money invested. And this is the reason why the Filipino (or even global) population density investing or trading in stocks is so small. The investing risk is impressed to many as too much and it is not worth to be undertaken by many. Based on my experience, that was my belief too. That is why only lately that I have opened an account in stock investing.

However, I was taught that there is always a way to mitigate or lessen the risk. The strategy of risk reduction depends on what mode of investment a person has chosen to do. The mode of stock investing can either be Trading or Investing.

For quick view of the difference, generally Stock Trading is done on a daily, or even week basis. A trader does not cling to a stock for a long term. He buys today, he sells tomorrow. And more notably, trading is done by people who have larger cash. Trading is too risky. One may sustain loss big time one time.

Stock Investing on the other hand is for people who intend to hold position (another term for stock ownership) for a much longer time, say 5 years or even a decade or two. Stock investing is much more suitable for people who plans about retirement and who has a limited or small capital. Stock investing is much less riskier than trading.

In my case, I chose stock investing or the long term mode. First, it is for my retirement. And second, I only have a small capital. Not that I can not risk a large amount in stock trading rather I have yet to get a large amount to risk. All I can afford is to invest small amounts in long term.

The consequence of choosing a long term investment is to adapt to strategies that suits for it to lessen the risk of losing my money.

Peso Cost Averaging

I was taught that one way for beginners to lessen the risk is to employ peso cost averaging. This simply means invest same small amounts consistently. I can do it every pay day or every month. This is in difference to one time big time purchase of a stock. This way, the sustained loss overtime is reduced or absorbed by the averaging thus, though in some months the share price is down, the loss is not so much since the purchases made in some other months were yielding a profit when computed to the current price.

My stockbroker suggests cost-averaging.

There is one strategy they say that much more potent than cost averaging. But it requires a paid membership to have the technique. In time soon I will subscribe to the membership to avail the strategy.

I Listen to My Stockbroker

My stockbroker usually gives out reminders, notifications and stock alerts. I heed to my stockbroker. I bought stocks based on its list.  The companies on its list are viewed as stable companies also called as blue-chip companies. Blue chip companies are best recommended for investing.