Importance of risk management in stock investments

There are two main reasons why investors need to manage their risks in a stock market, ant those are the risk management finds investors’ own styles and gives more chance to win in the stock market. The systematic risk could be overcome by long-term investments, and the non-systematic risk could be overcome by diversification. These are the two basic ways to manage risks in the stock market. In addition, a writer Mr. Kim, who is a professional financial planner, mentioned about a diversification method that when the investors diversify their portfolios, their stocks should be negatively correlated. Therefore, if one stock goes down, the other stock may go up. This is the basic way to diversify your portfolio. By the way, I think that it is a good risk management for the individual investors that let the fund manager can take care of their stocks, if the individual investors are not sure to win in the stock market. In addition, investing stock is too stressful for individual investors because they might have their own jobs, and families. Therefore, they have limited time to watch their portfolios, but the most individual investors tend to spend too much time on real-time graphs and value of stocks. Even though the individual investors made huge profits on their investments, that way may stress them physically and mentally. Thus, choosing right risk managements in the stock market is important.
In conclusion, if investors are worried about investment in stock market, let the fund managers do it. If investors want to learn the investment by doing their own, then follow those two basic methods, which are investing in long-term, and diversification. Again, when the investors diversify their portfolios, they should choose stocks, which are negatively correlated, so they would not lose a lot in the worst situation.

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