October 2009
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8 ways to spread the risk in your stock market investment
Submitted by Van Beek on October 27, 2009 - 09:32Spreading the risk in your stock market investment is more than diversifying into different sectors. In this blog article we will see 8 ways to spread the risk in your stock market investment and I will go a little more into detail for one of them. This is the one that I wished I had used about 10 years ago.
In the beginning of 2000, I did not have my system yet for recognizing market trends and when to make or when to get rid of your stock market investments. During the boom years before I was always afraid that I was too late to step in since the markets had gone up so far already. And every month I was proven wrong since the markets went up further.In the end the pain became too much to see everyone around me making lots of money while I stayed behind with my savings safely in a bank account grossing me a few percent interest per year. Greed got hold of me and I made up my mind how much in total I wanted to invest in the stock market. I created a diversification strategy by selecting a number of mutual funds each covering a different industry sector.
Major mistake
And then I made the major mistake: I invested everything all at once. The first months were great, but then the market started to tank and my losses started to mount (I did not have the system yet that would have warned me to “get out”).
This brings me to the first way to spread the risk in your stock market investment: Stretch your new investments in the stock market out in time, over a number of months.
Do not make all your investments at the same time or in the same month. Start with only a certain percentage of the total amount you want to invest. Preferably do this of course when our system indicates that it is likely a good moment to start riding the trend up. Add to your investments in the following months, provided that the positive trend continues and you and our system do not foresee any serious warnings.
In this way, you minimize the risk in case we are wrong. And that is always possible of course, but it is essential then to limit the impact. And that is what we do when we are going “in” step by step. And when we are right, we could of course have made more money when we would have gone “in” all-out initially. But that is greedy and risky. I prefer to be happy with the handsome returns I make already by playing it a little more safely.
8 ways to spread the risk
Here is the overview of the 8 ways to spread the risk in your stock market investments.
- Stretch your new investments in the stock market out in time, over a number of months.
- Split the investments that you plan to make during a month in two or more batches and execute these trades at different dates during the month.
- Spread out the selling of your stock market investments over a certain time period. Note that in general I prefer to get “out” more quickly than that I get “in”.
- Diversify your investments over different continents.
- Spread your investments over companies with different sizes.
- When investing in markets abroad, consider how the currencies from those markets might move in strength versus your home currency.
- Spread your stock market investment over different industry sectors.
- Divide your investments over different companies to be less dependent on the performance of one particular company.
The best way for me to realize all this diversification and spreading of risks is by investing in a limited number of well selected mutual funds or exchange traded funds. Otherwise, it would become too time consuming to keep track of all the different companies and markets.
But spreading the risk in your stock market investment is important when you want to sleep well at night and not risking it all.
I am interested to hear how you diversify your stock market investments. Please register or login to comment on this article and share how you spread the risk.
How to invest in the stock market – and make money
Submitted by Van Beek on October 24, 2009 - 09:35If I just would have know 15 years ago what I know now about how to invest in the stock market. But we cannot turn back time. And it is never too late. The last 7 years have been very, very good. In this blog I am sharing my experiences on how I invest in the stock market and how also you can make money in this way.
It is simple, pretty save and straight forward. And it is not time consuming. You keep all control and visibility over your money and investments. I just share my experiences.
Having no time to do the ground work
Over the years I have learned how to invest in the stock market and make money, without that it takes me a lot of time every month. I just do not have that time. Or let say, I want to spend my time on other things. My work. My family.
I do not want to spend every month hours and hours anymore to research the financial reports of all those great companies to see if they are really so great. Initially I invested in individual stocks. But that takes a lot of time. Too much time.
And it is impossible to be always right when picking individual stocks. To mitigate that fact, one can research, choose and invest in a large number of different stocks. But that just takes even more time that I do not have.
Selecting funds in stead of picking stocks
Therefore, I invest now mainly in mutual funds and Exchange Traded Funds (ETF’s). However, there are many funds that do not perform well at all. I have had my own experiences with this. But now I know how to pick the funds I can rely on.
Selecting the right funds is less time consuming than trying to pick the right stocks. And funds take care of the diversification for you. But you will also need to know when to buy and when to sell these funds.
In this blog, on this website and in my regular newsletter, I will share the lessons I have learned on how to invest in the stock market. How to make money by knowing when to buy and when to sell which funds, without that it takes you a lot of time.
If you want to get on a regular basis valuable information on how to invest in the stock market, making money with it, without that it takes you a lot of time, sign up now for my newsletter, on the top-right side of the page.
Quick Start Guide - How to Capitalize on Stock Market Trends
This strategy to capitalize on stock market trends does not take a lot of your time. It is simple and straightforward. Its objective is to help you to grow your savings and protect your wealth while saving your time: make great long-term money in the stock market with just one hour per month and avoid the next prolonged market crashes like those in 1987, 2001 and 2008. And it can be free.
In summary, as a Stock Trend Investor, you will use the following approach to grow your savings, profit from downturns and protect your capital:
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