Nobody can be sure of their investment. There are always risks involved and the possibility of losses in the investment. One can lose all the savings of the life by playing with the market. Any wrong step taken can lead the trader in difficult situation. The price changes in a moment once the market is volatile. The market in some cases is so volatile that it makes the person putting the money nervous. The solution to it is making the portfolio diverse and increase the period of investment.
There is one more important point that he trader should not spend all his money in one company or one stock. Also it is advised that the trader keeps about 20 percent of the total investment as cash with him. The trader can have a diverse portfolio and can invest in different sectors. The trader or the investor should not put all the money in the single sector. For example if the technology sector is growing it does not mean that the investor should invest all his money in different technology companies. Instead the investor should look at the diversification of the sector. He should look at all the major sectors and select 3 or 4 major among them as a choice to invest. This will protect the interest of the investor in case there is a downturn in a particular industry group or sector.
Another principle which is important in stock investing is that one should try to buy low and research extensively. The best time to buy the stocks is when the prices of the stocks are low. Thus in case of stock market crash there is an opportunity to buy the stocks at a lower price. The good stocks or the stocks having good fundamentals will definitely recover the difficult time. Also the investor should first research extensively to trade effectively in the stock market. The investor should use the fundamental analysis to a maximum extent to know the stocks which are worth of investing. The P/E ratio of the various companies should be checked and the companies’ worth of investment should be chosen.
Also if the investor is new to the market, the help of some financial advisory firm can be taken to decide a better portfolio.