Avoiding Risk for the Green Investor

by: Holly Thompson

I can't count the times that I have been approached at social events by friends of friends looking for the eternal answer "how to get into the stock market without losing any money." We all want to invest our hard earned wages into vehicles that produce great returns without any risk. Of course, this is easier said than done.

The market is a gamble. The question is, are you a weekend warrior or a high roller? I always suggest setting aside a small amount of money that you aren't afraid to lose to make your first buy in the stock market, money that you were planning on spending without any return. This takes out the emotional attachment and starts the new investor on a path to make educated decisions.

The biggest pitfall new investors need to watch for is the Buy High/Sell Low catch. So many times investors watch stocks run up and decide that it is time to get in. Not too long after that, the markets slow down and they can't take the slide back, so they get out. Remember that the stock markets always rebound, they always move up. Buy stocks at the dip, buy when the markets are low. This is where the gains come from.

Stock picking is an arduous task for any new investor. Luckily, today there are numerous websites that have good leads with great analysis to help narrow down the list. Don't always pick from the bottom of the barrel. Usually a stock is down there for a reason and it isn't because it is going to be the next breakout story. Lessen your risk by choosing a company with a solid history, solid earnings and upcoming potential for growth. Those are the basics.

Remember to diversify. This is where a good investor reduces his risk in the markets. Every day, every quarter stocks go up and stocks go down. Tech stocks are up, healthcare stocks are down. Then they switch. This is the nature of the game. If you are invested in different sectors, you are sure to keep a good balance in your portfolio and will ensure more stability than if you were fully invested in only one sector.

Discipline is a great tool when investing in the stock market. Take the emotional decisions out of the equation and write down a plan with set goals to follow. A good road map always leads to great adventures.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.