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The world of investment works on a very simple proposition – higher the risk, higher the return. If you invest all your money in the stock market, chances are high that you will either end up with lots of returns or with lots of losses. Your portfolio should contain investments in various securities and options that distribute the risk and reduce the chances of losses.
Avoid making the mistake of trying to reduce the risk of losses down to zero. That is not going to work. Instead, you should focus on minimizing the risk and maximizing the returns from each and every risky proposition that you undertake.
In such a scenario, investing money in mutual funds or exchange traded fund is the best way of reducing risk. Mutual funds hands your money over to professional managers who are experts in investing money and generating maximum returns. You shall pay a lot of money to the experts for their services. Choosing your mutual fund carefully will help you minimize risk and generate adequate returns to keep your family financially stable.
Another option is to invest money in exchange traded funds where the fund simply tries to mimic the performance of the index. In the long run, matching the returns of the index is a smarter option.
The third investment option that should become a part of your portfolio is stocks. This is important because a good stock market rally will generate returns that far exceed those offered by mutual funds and exchange traded funds. Depending on your aversion to risk, you can invest 10% to 50% of your total portfolio value in shares and stocks.
