How to Minimize the Risks of Stock Ownership

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The best way to minimize the risks of stock ownership is by doing a lot of research when first purchasing the stock. Find out how to diversify a portfolio with help from a portfolio manager in this free video on personal finance and money management.

Part of the Video Series: Stocks & Bonds
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Video Transcript

Okay. So you're wondering what the best way is to minimize the risks of stock ownership. The best way is really when you're first purchasing the stock. Have a...do a lot of research, understand the stock, know what you're buying, and really have a good knowledge of what you're purchasing. That way, if something were to change in the market or in that company, you'll know when to sell, when to step away from it if there's a problem. And also, you may see that it's just a really good, really solid company, well-managed, and it's something that you can hold onto for a very long time. The other thing to look at is diversifying your portfolio. If you buy, for example, all stocks in oil or energy, you're only going to respond to that sector, and sometimes that's way up, sometimes it's way down, but it doesn't give you a diversified portfolio that looks at other things that are going on in the world. So you really want to make sure that you're spread across a number of different industries and, you know, in possibly a number of different countries. So look at stocks from all over the world, look at good, solid companies, look at names that you might know, and look at things that will play off each other. So if oil is down, maybe your pharmaceutical companies are up. It's just a balancing act, and make sure that you're well-diversified. So really, knowledge and diversification are the two best ways to minimize your risk.

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