In share investing we always talk about managing risk, which may sound rather abstract.
The objective of managing investment risk is to minimise the possibility of your portfolio running into huge, irreversible loss. If one’s overall portfolio is down by 50% on paper, his funds would be stuck for an extended period and not able to invest somewhere else profitably. The opportunity cost is immense.
Worst case would be an investor who can’t stand the drop and sell out, his previous good returns earned during market rise (like now) would have been emptied. Besides financial loss, it would deal a big blow to his confidence and some may just bow out and leave the market for good.
So how can one properly manage investment risks at a portfolio level?
Define Percentage of Available Funds to Invest
In essence this is about taking a good hard look at your overall financial …