Stay Ahead of Market Swings: 6 Smart Tips to Safeguard Your Investment Portfolio

Investing in the stock market can be exciting and rewarding, but let's face it – it can also be nerve-wracking. The ups and downs can make anyone feel like they’re on a roller coaster, and without a solid risk management plan, it’s easy to get overwhelmed. Whether you’re new to investing or just looking to strengthen your strategy, these tips can help you protect your portfolio and stay on course toward your goals.

1. Diversify, Diversify, Diversify

You’ve probably heard the phrase, “Don’t put all your eggs in one basket.” Diversification is that concept applied to investing. By spreading your investments across different sectors, industries, and even asset types, you lower the chances of one bad investment taking a major toll on your portfolio.

How to Diversify:
Diversifying doesn’t mean you need to invest in a hundred different stocks. Start by covering the basics – like having exposure to sectors such as tech, healthcare, and consumer goods. You can add bonds, real estate funds, or even some international stocks to get a wider spread. Exchange-traded funds (ETFs) and mutual funds are great ways to diversify without having to buy each stock individually.

Think of it like building a team: you wouldn’t want all strikers in a soccer match – you need defenders, midfielders, and a goalkeeper, too. Each “position” (or investment type) balances out the other, helping to smooth out the ride.

2. Find Your Balance with Asset Allocation

Why it Matters:
Asset allocation is just a fancy way of saying “decide what goes where.” It’s about divvying up your money between stocks, bonds, and other types of investments based on your goals, how much time you have, and how much risk you’re willing to take.

How to Allocate:
A common tip is to subtract your age from 100 to determine the percentage you should have in stocks. So, if you’re 40, you might go for 60% in stocks and the rest in bonds and cash. But it’s more of a guideline than a rule. If you’re a bit of a thrill-seeker, you might go for a higher percentage in stocks; if you’re risk-averse, you could lean toward bonds or other stable assets.

This is something you’ll want to revisit periodically – especially as your life changes. Just like you might not want the same wardrobe from your 20s, your portfolio might need a refresh now and then.

3. Set Stop-Loss Orders to Limit Surprises

Nobody likes the idea of losing money, but the stock market doesn’t always play nice. A stop-loss order is a tool that lets you control how much you’re willing to lose on a particular stock. If the stock price drops to a certain point, it’s sold automatically, helping you cut your losses before they get too big.

How to Use Stop-Loss Orders:
Say you bought Stock A at $50 per share. You might set a stop-loss at $45, so if the stock falls to that price, it’s sold automatically. This way, you limit your losses to $5 per share instead of potentially watching it fall even further.

Think of it as setting up a safety net. It’s not foolproof, and it won’t always save you from market dips, but it can prevent a single purchase from hurting your entire portfolio. Plus, it can help you avoid the emotional roller coaster of deciding whether to “hold on” or “cut loose” during market volatility.

4. Know Your Risk Tolerance

Everyone has a different threshold for risk. Some people can handle watching their portfolio swing up and down, while others might lose sleep over it. Knowing your risk tolerance helps you create a portfolio that won’t keep you up at night.

How to Assess Your Risk Tolerance:
Ask yourself some honest questions. Are you okay with short-term losses if it means potentially higher gains down the road? Or do you prefer the safety of steady, slower growth? Think about how you’ve reacted in past market dips, too – if you panicked and sold, you might want a more conservative approach.

Most financial sites offer quick quizzes to gauge your risk tolerance. Knowing where you stand can help you build a portfolio that aligns with your comfort level and keeps you grounded even during turbulent times.

5. Keep Some Cash on the Side

While it’s tempting to go “all in” with your investments, having cash reserves gives you flexibility. Whether the market takes a sudden dip, or a personal emergency arises, having cash on hand lets you avoid the need to sell assets at a bad time.

How to Manage Cash Reserves:
Think of this as your “just in case” fund. You don’t need to keep a huge percentage in cash, but having a small portion, like 5-10%, set aside can be helpful. It’s especially useful if you want to jump on new opportunities – for instance, buying stocks at a discount when profit taking happens.

The stock market is unpredictable, and having cash reserves keeps you prepared. Plus, it can also prevent you from feeling forced to sell assets when they’re down, which often leads to losses.

6. Rebalance Your Portfolio Regularly

Let’s say you started with 60% in stocks and 40% in bonds. If the stock market has a good year, that 60% might turn into 70% of your portfolio, which means you’re more exposed to stocks than you intended. Rebalancing helps you bring things back to your original target and maintain your risk level.

How to Rebalance:
Every quarter or year, take a look at your portfolio. If it’s drifted too far from your original allocation, consider selling some of the investments that have grown and buying more of those that haven’t. It might sound counterintuitive, but this approach keeps your portfolio balanced.

Rebalancing is like tidying up your potted plants. Sometimes, you need to prune back certain areas to keep everything in balance and give each plant room to grow. By rebalancing, you’re keeping your investments in line with your goals, rather than letting the market dictate your asset mix.

Bottom Line: Protecting Your Portfolio Is About Balance and Flexibility

Risk management is about finding the right balance that suits your goals and sticking to it. With diversification, setting stop-losses, keeping cash reserves, and rebalancing, you can protect your portfolio while still making the most of growth opportunities.

Investing is a journey, and there will always be bumps along the way. But with these strategies, you’ll be better prepared to handle market ups and downs – and keep your portfolio moving forward.

Hope you have found the above useful 😃 

If you have yet to be a part of Joey’s VIP clients in Phillip Securities receiving his Exclusive WhatsApp Broadcast daily, you can check it out here!

Joey and team post Top SG Stock Ideas, Market Updates, Research Reports and training videos on a daily basis at NO additional cost.

Look forward to see you on the inside!

- Joey, Bervyn & Zee

Note that by subscribing to receive any of Joey's training by email, you agree to allow us to send you the training by email. Investments are subject to investment risks including the possible loss of the principal amount invested. The value of the units in any fund and the income from them may fall as well as rise. If the investment is denominated in a foreign currency, factors including but not limited to changes in exchange rates may have an adverse effect on the value, price or income of an investment. Past performance figures as well as any projection or forecast used in these web pages, are not necessarily indicative of future or likely performance of any investment products. By Accessing this Website and ANY of its pages, you are agreeing to the terms set out ON ALL the following pages as seen below. Copyright © | Joey Choy | All Rights Reserved | Disclaimer | Privacy & Security Policy | Terms and Conditions