Investment methods to eliminate risk from your portfolio

Not knowing what the future holds can be unnerving. Any kind of uncertainty can be hard to deal with - emotional, physical, or financial. However, life is full of unexpected moments, and as long as you are prepared for them, you can come out pretty much unaffected. 

There are several types of risk in investment, too. Different asset classes (such as equity, debt, etc.) carry distinct levels of risk. These investment risks refer to fluctuations in returns due to macroeconomic factors, such as inflation, changing interest rates, market volatility, and others.

Thankfully, some investment risk management strategies can help you reduce the risk factor and earn favourable returns. Read on to find out more:

1. Do your research before you invest
 

Investing without knowledge and falling for scams can increase risk. So, it is vital to conduct thorough research before picking an investment avenue. For example, while investing in equity, check the company’s growth, debt-to-equity ratio, etc., to analyse the company’s future growth. This can help you avoid pitfalls.

2. Invest only as per your risk appetite 
 

Risk appetite refers to an investor’s ability to tolerate risk in investment. Your risk tolerance or appetite can depend on your age and financial goals. Usually, younger investors tend to be more risk-tolerant than older ones. If you are young, you can invest more in equity, which is a high-risk asset class. But if you are nearing retirement, try to invest more in fixed-income assets as they are considered relatively low-risk.

3. Diversify your investment portfolio
 

Portfolio diversification is another useful investment method to lower risk. According to this, you should distribute your money in multiple investment options spread over different sectors, industries, asset classes, or market capitalisations. This way, you do not concentrate all the investment risk in one place. It is unlikely that the two investments will react to the market similarly. Even if one delivers a loss or a lower return, the other can help balance it out. IDFC FIRST Bank’s Mutual Funds can be suitable for creating a well-diversified portfolio. 

4. Keep a long-term investment approach
 

Patience is critical for reducing investment risks. A long-term investment strategy can help you override short-term market volatility. A long investment term is largely unaffected by short-term market highs and lows. Moreover, the more time you spend investing in the market, the more time your money stands to benefit from the compounding factor. This can add up to higher gains at maturity. 

5. Check your portfolio performance
 

Once you create a suitable portfolio, monitor its performance and conduct periodic reviews. You can review long-term investments once or twice a year. Avoid reviewing your portfolio too often, as you may end up making more changes than required, which can be counterproductive. For example, equity funds are more prone to short term volatility. So, alter the portfolio only if the assets are not performing well for a longer duration.

Conclusion
 

Every investment comes with related risks. But the above-mentioned investment strategies can ensure an adequate balance between investment risks and returns. Above all, remember to select the right investment options - such as IDFC FIRST Bank’s Mutual Funds - to acquire a diversified portfolio that can deliver optimal returns. 

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.