Risks and Rewards of Share Trading

All investment in the share market has risks along with the rewards. The greatest risk is that you will lose all your money, or you may just lose some of it - that's bad enough. No one likes to talk about their losses, but they do happen and sometimes the loss is devastating. However, the risk can be mitigated to some extent by making sure you diversify your portfolio.

You can also choose low risk shares, but of course that means you will have a smaller profit. When you choose a high-risk option you stand to gain a great deal, but you could also lose everything. It's entirely up to you to decide what level of risk you are comfortable with. Experts tell us we should have a little bit of each to maximize our returns without risking all our money.

They also consider that a 60%-40% package is the ideal way with 40% of your savings being kept in cash like a savings account and the 60% invested into your share portfolio. That way you will still have some money left if the share market should come tumbling down. Investing in quality shares rather than those fly-by-nighters is also a way of minimizing your risk and maximizing your returns.

When share trading, blue chip shares are considered the safest to own for the return you get. If you believe that a company is doing all the right things to grow and expand, that their strategies are sound and executable, then that company is one in which you should invest for good capital gains. But even when choosing blue-chip stock you should still diversify into as many different types of investments as possible.

Investing for the longer term of at least five years is also a factor in mitigating risk because the long term investor is not as likely to be affected by the volatility of those short term peaks and lows. Of course the diversification will also protect you from fast high rises, so you could miss out on some exciting gains. But if you are in for the long haul, it is better to miss out on those and also miss out on a horrible and unexpected loss, which simply cannot be predicted. So to recap: -

- Invest in quality.
- Invest for the longer term.
- Invest in many different types of shares.
- Invest at a 60%40% ratio.

If you remember those four rules you will most likely have fair sailing in your investment endeavours.