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Value Investment and Mindset

How to Manage Your Investment Portfolio and Reduce Risks?

After getting all of the investment information in this series, you have probably started investing by now as a value investor. Investing is just the start of the process; the important part is to manage the portfolio so that you can reduce some of the risk factors while investing.

Now let’s focus on how to manage the investment portfolio.

What is an investment portfolio?

It is a basket of ownership of a stock, bond, or other financial asset with the expectation that it will earn a return or grow in value over time.

Usually, as investors, we always look at portfolio returns instead of individual stock returns.

So how can you manage your portfolio to minimize risks?

“Don’t put all the eggs in one basket.”

Eggs represent your total stock investment, and the basket is the stock.

If we put all the investment funds in one stock, what if the stock doesn’t perform as well as expected and share prices drop drastically. You will lose all your money. But imagine if you buy 10 stocks and allocate Rs 1000 in each. If, for instance, we lose 100% of 2 stocks out of 10 stocks, but at the same time you get a 30% return for the rest of the stocks in your entire portfolio. You will reduce the risk of losing all of your money.

Stock diversification is the key to managing your investment portfolio. Not only stocks but also financial assets should be diversified to minimize the potential risks.

If you invest in a company because you’re just confident, then it's not an investment; its gambling.

Investing is diversified.

As we are not able to predict the future, we can’t say if the company in which we’re confident will grow.

What we can do is just do company research because we don’t know how a single company will perform (false expectations).

Therefore, diversifying the portfolio is a better option for risk reduction.

What to do, how many stocks to hold, or how diversified should it be?

It is suggested that we not hold more than 10 stocks so that we can focus well on the company. (As regular investors, we need to follow up with every company we invest in, and sometimes we might not have enough time to focus on every company if we have too many stocks to look at.)

Too many stocks in a portfolio will dilute the stock percentage in your portfolio and slow down your portfolio return.

Conclusion:

Diversify stocks in the portfolio to minimize any potential risks.

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Last Updated: Sep 19, 2024

Tags: #finance #investment #portfolio #investing #stocks #stockmarket #investmentportfolio #mutualfunds #compnay #money #financiallearning #manageportfolio Category: Finance & Investment Learning Lifestyle