4 Ways to Minimise Risk In Your Online Investment Portfolio
In this age of digital transformation, the Internet not only serves as a space for communication and entertainment but also for income generation and wealth creation. As covered in a previous article about YouTube in India, there are many possible ways to earn money through this platform — from monetising videos through ads to delving into online coaching, consulting, and tutorials.
But beyond content creation, another way to make a profit online is to invest in financial products like stocks, bonds, foreign exchange, and mutual funds. Online trading platforms have made these global financial markets accessible even to beginners and working moms tapping into these assets as a form of passive income. However, just like traditional forms of investment, trading and investing online still comes with its own risks. While these risks cannot be eliminated entirely, you can minimise them and prevent financial losses through the following ways.
1. Determine your risk tolerance
An essential part of risk management is investing only according to your risk appetite, but how exactly do you determine the level or amount of risk you can tolerate? An article in the Times of India guides investors through identifying risk tolerance by first considering financial goals and their timelines. As a parent, you may have long-term goals like property acquisition or retirement planning, which means you can take calculated risks with equities. Meanwhile, working toward short-term and immediate gains entails choosing assets with guaranteed returns, such as certificates of deposits. Lastly, other factors like age can also influence your risk appetite. For instance, younger investors can be more risk-tolerant with equities, while those nearing retirement age can stick to low-risk, fixed-income securities.
2. Calculate the profit/loss potential before investing
Once you’ve done sufficient research and chosen an investment avenue, it helps to use an investment calculator to estimate the capital you need and the expected returns on the assets in your portfolio. A reputable online trading platform typically includes a pip calculator to determine the basics of your trading or investment position, starting with the profit and loss potential of a financial instrument if the price were to move by a percentage in point (pip). You can also calculate the margin or required capital, spread costs, and commission fees for an open position to help you choose the optimal investment amount with minimal risks and maximum returns.
3. Diversify your investments
Another useful risk management method is diversifying your online investments across risk levels and asset classes. Equities like stocks and foreign exchange currencies offer huge returns when there’s an upward trend in prices, and their markets are experiencing bullish conditions. For example, stocks listed in benchmark indices Nifty 50 for the Indian National Stock Exchange and Sensex for the Bombay Stock Exchange recorded their best performance and reached a six-week high in September 2023 — indicating profitable prices among energy and public sector stocks. However, the stock market is also highly volatile, necessitating low-risk assets like bonds and dividends to offset potential losses. Ultimately, hedging risk across multiple investments allows you to stay afloat and mitigate losses even during adverse market conditions.
4. Stay updated on investment news and trends
Since the returns on your investments rely on market movements and key economic events like inflation, staying updated on investment news and trends is crucial. Even when the market appears to be stable, make a habit of checking news sites like the Economic Times and The Indian Express to determine how the price and value of assets like stocks and forex are faring. Notably, online trading platforms have functional features like a built-in economic calendar and transparent pricing history to help you make more informed decisions and adjust your investment strategy accordingly.
Although risk is an inherent part of investing, employing the risk management methods mentioned above will help protect your online investment portfolio. Incorporating them into your overall trading plan and strategy also ensures you are closer to achieving your financial goals for you and your family, even in times of volatility and uncertainty.
