Investment Strategies to Minimize Risk

Last time, I shared the questions that should be asked by anyone who is seeking to invest. Today I an going to share Investment Strategies that will help you minimize investment risk while providing a high rate of return.

Ecclesiastes 11:2

Invest in seven ventures, yes, in eight; you do not know what disaster may come upon the land.

Diversification

The above verse gives us a hint as to the type of investment strategy we should have. Diversification is spreading investment around into many type of investments. This includes Stocks, bonds, mutual funds and cash.

Investments can also be diversified into different mutual fund investment strategies which includes growth funds, balanced funds, small cap, large cap, index funds and sector specific funds. Sector specific could include investing in (renewable energy, pharmaceuticals, financial )

You can also invest geographically which includes domestic and international investments. You can also invest in companies that have a regional focus.. As you can see diversification reduces your exposure (risk).

Asset Allocation

Asset Allocation involves dividing your investments into different asset categories. These asset categories include stocks, bonds, or cash.

A decline in the investment return in one or another asset class can be offset by a positive return in another class.

Finally your asset allocation strategy will depend upon your time horizon and the amount of risk you can tolerate.

Longer time horizon, may give you the opportunity to regain any losses.

Dollar Cost Averaging

Dollar cost Averaging is when you invest a set amount of money at regular intervals over a long period of time.

You eventually gain an advantage from the rise and fall in the investment price over a period of time by buying more shares when the price is low and less when the price is high. (see example below)

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