Is there such a thing as a safe stock market investment? The answer is not a simple yes or no. There is no way to ensure that an investment will be a safe one, because no company - and thus no stock - is impervious to market volatility, economic fundamentals, or the whims of investors. That said, there are strategies that can help mitigate the risk inherent in stock investing.
Strategic Investing for Conservative Investors
Evaluate — Assess where the line is for you between risk (loss) and reward (gain); this is known as your risk appetite. Many people go into stock investing automatically assuming that they are conservative investors. Yet in many cases, once they evaluate their comfort level with risk and reward, they realize they are not as cautious as they originally had believed. Your investment advisor can help you determine where you call on the conservative/aggressive investor spectrum. Once you have a firm sense of where you fall, you’ll know which stock investments are worth considering and which are definitely not right for you.
Strategize — First, determine where you are on your investment path right now; that’s your starting point. Then determine your investment goal(s); that’s your end point. Are you investing for the long term? If so, for how long? Are you looking for high returns or stable income generation? Are you looking to grow your investments or preserve them? Your strategy will guide you from where you are today to your financial goals.
Diversify — Diversification is one of the most important principles for investors at all levels of risk comfort, but especially for conservative investors. If you invest too conservatively, your money may not grow as much as you need to meet your goals. If you invest too aggressively, you put yourself at greater risk of loss.
Rebalance — Rebalancing is how you stay diversified. As the market moves, some of your investments will increase in value and some will decrease. When that happens, your portfolio’s balance changes. So annual rebalancing is about selling shares in investments that are overweighted in your portfolio and buying shares in investments that are underweighted.
In addition, once a year, you need to sit down and reevaluate your risk tolerance and goals to see if your portfolio is still in alignment with the risk you’re willing to take on and the goals you’re looking to achieve. You may realize that your money is not growing enough to achieve your goals. Or perhaps your circumstances changed - a new job, relocation, loss of a spouse, etc. - and your new circumstances demand a new investment strategy.
Please call if you’d like to discuss this in more detail.