There is no such thing as a risk-free investment as all investments involve some degree of risk. Whether you are investing hundreds or thousands of dollars, it is important to understand that to gain the potential rewards of investing, you must be prepared for the potential risks.
You are responsible for deciding how much risk you want to take and therefore for mitigating against such investment risk.
Some examples of risks may include:
There are two basic investment strategies that can help balance risk and reward:
Asset allocation refers to the different weightings of stocks, bonds, shares, or cash in your portfolio. Diversification takes this process one step further by spreading your money across different investments within the same asset class. Instead of putting all your money in one type of investment, spread your money across different types of investments. Diversification is not a guarantee that you will not lose money on your investment, but it does enable you to reduce your risk of losses while possibly increasing your return potential across a portfolio of investments.
Risks may also vary from one type of investment to another; meaning the level of risk you take on is up to you. An investor should consider their time horizon and risk tolerance before committing to an investment.