Posted by: Labdhi Mehta on Nov 13, 2017, 06.30 AM IST
1. Risk is not the same across various asset classes, hence holding a portfolio made up of multiple asset classes helps reduce overall risk.
2 . Monies allocated to a particular asset class can be further divided among various sub categories belonging to that asset class to spread the risk.
3 . Investing based on the risk profile of the investor and returns required to meet the goals can ensure that the actual returns are more or less in line with the expected returns.
4 . Risk can be reduced by limiting or offsetting the probability of loss from fluctuations in prices of the investment by using hedging strategies. However, they add to the cost of investment, thus reducing the return.
5. Monitoring and rebalancing investments periodically can ensure that the investment risk of the portfolio is well within the desired level.