Reduce Your Portfolio Risk

When we invest in Stock Market, the dilemma which a person faces is what should be the time when we have to reap in the rewards or how long should we keep the stock with us. Well as an investor, your number one priority should be to protect your capital, once that's sorted out you can focus on putting your money to work for you.

Protecting your property or privacy is a natural instinct. There are many ways we protect our property, but something very few individuals do is protect the value of their portfolio. We deposit our capital in the bank or in a safe deposit box, without a second thought as to how inflation, market and currency risks will effect its value.

What risks are involved are:

• Market Risk: Market risk is a risk you take when you invest in the market. If the particular market you have invested in (stocks, real estate, bonds etc.) drops, the value of your investment will drop. This risk can be minimized by spreading your money around in different markets, by doing this you reduce the exposure of your portfolio to any one market. If one or two markets experience a drop, the value of your portfolio will suffer less.
• Inflation Risk: Inflation risk is another risk the value of your portfolio faces. Inflation reduces the purchasing power of your money. As inflation continues year by year, every Re. 1 you own will hold less and less purchasing power, reducing the value of your savings and investments. If you have invested conservatively and have a large percentage of your capital in bank accounts, CDs and bonds, even though it may appear that you are earning money, with the effect of inflation you may actually be losing money. Inflation and interest rates affect the Forex market in a fairly predictable way. If one countries interest rate less inflation is higher than another's there's a very good chance the value of the currency in that country is going to go up. This occurs as international investors seek to invest their money where it can gain the most, placing increasing demand on the currency which pushes the value up. You can use this predictable pattern to make money in the Forex market.

Be careful of these and you will find money flowing at your doorsteps. Just beware and be careful.