Investing for Beginners: Learning How to Weigh the Risks

Posted by Eric LeRiche | January 6, 2009 .

If you’re attending an investing for beginners workshop, you’ll most likely learn about managing
risk and maximizing profitability on the first day. Risk management and profit maximization are
two important goals every investor should aim for.
You want to minimize your risks in investing while maximizing the profits you make from your
investments. One important thing that you’ll also learn from an investing for beginners workshop
is that you can’t completely eliminate risk in investing. There are, however, things you can do
to reduce your risk considerably.

Investing for Beginners Tip #1: Hire a full-service stock broker.
A full-service stock broker is someone who makes a career out of investing, so it’s in your best
interest to hire one to help you in reducing the risks in each trade you make. A stock broker can
screen your investment moves. He can inform you if you are making a trade that has a low chance
of success. A stock broker can also give you hot tips on the latest stock, bond or mutual fund
that can be profitable for you if you act quickly enough. With your money involved, a stock
broker can be the best weapon you have.
Investing for Beginners Tip #2: Only deal with companies you know.
You can reduce your risk in investing if you choose to deal only with companies you’re familiar
with and those you’ve some sort of essential knowledge about. You can choose to deal only with
companies that have a track record of turning in a profit and are regarded as a reliable
investment. The stocks from these companies are referred to as “blue chip” stocks.
When you invest in blue chip stocks, the risk involved in generally low since companies that
offer blue chip stocks have a proven track record of turning a profit each year for their
investors. Technology companies like IBM and Microsoft, as well as oil companies like Shell Oil
are considered blue chip companies. Keep in mind, though, that there is still risk involved in
investing in blue chips; it’s just that the risk is very minimal compared to the risks by
investing in stocks that are not blue chips.
Investing for Beginners Tip #3: Invest in mutual funds.If you’re concerned you’d be unable to pick the right stocks for you to invest in, you can simply invest in mutual funds. Compared to stocks, mutual funds are less risk. Basically, a mutual find is a collection of stocks that experts feel is most likely to turn a profit each year. You aren’t investing in just one stock; rather you’re investing in a group of stocks. As the fund matures, those stocks that aren’t doing so well can be dropped and then replaced with the better performing stocks. Once again, it bears emphasizing that you cannot completely eliminate risks in
investing; mutual fund investing still has risks, but it’s lower than stock investing.
Mutual fund breakdowns from the different investment firms are available and you can order these.
This way you can see exactly which particular fund has done well over the last few years. Past
performance won’t guarantee 100% success for future returns, but it means your chances of
profiting from investing in a particular mutual fund are higher. Depending on your investment
strategy, you can pick aggressive mutual funds or the more conservative ones.

Many options are available to those who are new to the world of investing. Investing for
beginners shouldn’t have to be complicated; just ask the right questions, be cautious, learn as
much as you can about investing, and hire a professional stock broker to help you out.

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