For example, an investment in the so-called emerging markets is considered riskier than in industrialized countries, but on the other hand high profits are also tempting in the emerging markets. When looking at the sector, it should also be noted that stocks in the food and consumer goods sectors tend to fluctuate less than stocks in the technology sector, for example. And size is also important: the risk of loss in large corporations that are established on the market is generally lower than in young companies.
diversification
If a portfolio contains only a small selection of stocks, the weal and woe depends on the fluctuations of a few stocks. In order to increase security, attention should therefore be paid to a balanced distribution of the capital – true to the stock exchange rule: “Never put all your eggs in one basket”.
A division into different sectors, countries, etc. is important. Although there is an additional currency risk when buying shares in foreign companies, there is still no place for patriotism from an opportunity/risk perspective.
However, the overview should not be lost. For a long-term oriented investor, it is therefore advisable to equip the portfolio with around ten to twenty stocks.
Risk diversification using index funds
Because broad diversification is the best precaution against a crisis, equity funds are a sensible alternative to individual shares, especially for less experienced investors. This can be done easily and inexpensively with an index fund (ETF), for example. The abbreviation ETF stands for “Exchange Traded Fund”, i.e. for a fund that replicates an underlying index as precisely as possible – in the best case 1:1.
Individual values at a glance
Investors who prefer to invest in individual stocks should always keep an eye on the current news situation – especially with regard to the economy. Investors should exercise particular caution when selecting individual stocks and also have an overview of the respective sectors.
Set stop loss
It is almost impossible for private investors to keep an eye on the development of their securities around the clock. It therefore makes sense to protect your portfolio against sudden price falls. To do this, a stop loss is set at the custodian bank so that the securities are sold as soon as they fall to a certain level. Such a sell order can generate profits or possibly secure profits that have already been made.
Experts recommend that investors base their stop-loss rate on a technical mark below which the technical picture would clearly deteriorate. The mark should be set just below strong price support. Also, investors should be careful to adjust their stop-loss level upwards if their stocks are performing well over an extended period of time.
Profit from falling prices
So-called short ETFs could be suitable for investors who expect falling share prices and want to profit from them. These exchange traded index funds mirror the underlying index – meaning the ETF goes up when the index falls.
Such ETFs on short indices are less risky than classic derivatives and are therefore the better option for private investors. In contrast, put warrants are only for stock market professionals.
Don’t Panic
The “Stiftung Warentest” also has good advice that should always apply: “Investors should align their wealth strategy with the long term and not worry about current moods.”
Editorial office finanzen.net
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