Trevir Nath The stock market can be a great way to generate additional income and exposure to financial markets. Buying stocks constitutes equity of a corporation with returns coming from increases in the value of the asset or dividends paid quarterly or yearly. Stock prices can increase due to a number of factors, expected or unexpected. If a company is set to acquire another company or if their earnings exceed expectations can be the basis for upsurges in stock prices. While investing in stocks can be lucrative, most investors are not the next Warren Buffet. Investors unaware of the risks and basic strategies can be prone to investment blunders. Diversifying your portfolio and utilizing variety of options can insure an investor’s stocks preventing substantial losses.
Diversification
…show more content…
Through diversification, the net loss realized from a decrease in stock prices will balance returns from other assets. When approaching a diversifying strategy, it is important to spread the wealth between investments with constant and volatile returns. With respect to the stock market, safe stocks are ones which do not witness volatile movements in prices and pay dividends. Investing in a whole index such as the S&P 500 (INX) or Dow Jones Industrial Average (DJI), which encompass a collective of stocks, are a more effective strategy to insure individual stock investments. Bonds, commodities, currencies, and funds are also valuable assets to diversify a portfolio. In particular, U.S. Treasury Bonds are deemed as the safest asset to own as they are backed by the U.S. government. With returns in 10 to 30 years, holding U.S. Treasury Bonds can ease risk related losses from holding