Online Investing on the Australian Sharemarket, 5th Edition

Chapter 11Managing online investing risks

Online share investing involves some risks. In this chapter I'll look at the various types of risk associated with online share investing and suggest strategies for managing those risks. Although I'll focus on the online risks and strategies you can use for managing them, many of the risk management strategies apply equally well to offline share investing.

Tip

For more information about share investing risks and the management of them, please refer to chapter 13 of my book Teach Yourself about Shares.

Risk management and risk minimisation

In many people's minds, risk management is synonymous with risk minimisation, because for most activities in life we manage risks by trying to minimise them. For example, when we're in a motor vehicle we fasten our seatbelts because this minimises the risk of personal injury in the event of an accident.

With share investing you need to adopt a different mindset. Risk management isn't the same as risk minimisation. The reason for this hinges on the connection between investing risk and investing return. Simply stated, if you want a higher profit (return on your investment), you need to take more risk. If you're not happy with a higher level of risk, you need to be satisfied with a lower return.

Let's suppose you want to minimise investing risk to the lowest possible level. One way of doing this is to deposit your funds in an interest-bearing account with one of the major banks. This is about ...