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How to best manage your risk in the world of penny stocks

by , 24 November 2014

Risk management should be high up on your list of priorities if you invest, particularly in penny stocks.

But it's not always that easy. Some measures that you take when you invest may work well. Yet if the stock market starts to behave erratically, your risk management strategies can't keep up.

So what should you do?

Read on to find out…

The problems with risk management strategies and the stock market

Risk management has a tendency to work very well when the market is reasonably calm. But when it hits the slides, it’s a different story.

When it comes to dealing with your penny stocks, what should you do?

How to reduce risk when investing in penny stocks

Moves in the stock market can be extreme. But in many cases, you don’t have to get involved.

This is why is pays to be patient when you invest in penny stocks, David Thornton in Penny Sleuth explains. Having a long-term investment window is one of the best forms of risk management.

By focusing on the long-term, you don’t have to react to the dramatic short-term moves of the stock market. You can ride them out.

If you sell in the midst of a severe bear market, you’re banking permanent losses. If you don’t sell, you don’t realise those losses and can wait for the market recovery.

One of biggest risks facing investors is selling out and then missing the market recovery.

The next most important thing you can do to reduce your risk is not to panic.

Penny stocks are at the riskier end of the stock market. So you need to ensure that you have a sensible proportion of them making up your portfolio.

And that you have a diversified penny stock portfolio.

To reduce your risk when investing in penny stocks, you need to keep calm and thing long-term.

So there you have it, how to best manage your risk in the world of penny stocks.

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How to best manage your risk in the world of penny stocks
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