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Risk Management
Identifying and Understanding Risk | Managing Risk | Risk vs. Reward | What is your Quotential ?Managing Risk
There are several ways in which investors can minimize the level of risk in their portfolios. In this section, we have listed five investment strategies for controlling risk.
Diversification
Portfolio diversification involves having exposure to a variety of investment products (stocks, bonds, cash savings, etc.). This is simply the investment version of 'not putting all your eggs in one basket'. While mutual funds are inherently diversified because they invest in a basket of securities, investors can further diversify their holdings by owning different types of mutual funds. Franklin Templeton Investments mutual funds offer diversification by investing in many countries and industries around the world. In addition to increasing potential return, this diversification reduces the risk that any one country or industry will dramatically reduce the overall value of the Fund.
Systematic Investing (Dollar Cost Averaging)
It is impossible to accurately predict market fluctuations. That is why many experts suggest that investing at regular intervals may be one of the best ways to take advantage of market downturns and benefit from market rallies. By Dollar Cost Averaging, investors invest fixed dollar amounts on a regular basis, regardless of the market direction. The decision of when to buy is removed. When the net asset value (NAV) of the mutual fund units is low, the investment amount will purchase more units than when the NAV is high. This could reduce the average price paid for the mutual fund units and could improve the chances of achieving solid long-term results. Dollar Cost Averaging, however, does not guarantee a profit or protect against a loss in a continually declining market.
Long-term Investing
Staying focussed on long-term gains can help an investor stay invested in the most volatile markets. A long-term focus helps avoid the temptation to sell during declining or volatile markets (and missing out on gains when markets eventually recover). By staying invested and riding out market highs and lows, an investor can increase the long-term return potential of his/her portfolio.
Using Professional Management
By purchasing mutual funds, investors have access to the expertise of a full-time, professional investment manager, backed by a team of investment experts.
Seeking the Advice of an Investment Funds Advisor
An Investment Advisor can help clients establish realistic goals and formulate plans to achieve them. Together, an advisor and client can allocate and diversify the assets of the portfolio to reduce risk and increase potential returns. An advisor can also help investors monitor and, if necessary, readjust their portfolios over time.
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