Risk equals the potential that actual returns will differ from expected returns.
1. The best way to manage risk is to allow yourself ample time. Start investing now rather than later. When you have time on your side, more of your money can be invested in stocks rather than in bonds and money market instruments because you would have a larger capacity to ride the ups and downs of the stock market.
2. Secondly, you can manage risk by diversifying your money into stocks, bonds and money market investments. This is called asset allocation.
3. Finally, the way you divided your investments depends on your specific situation and your goals. Spend some time thinking about the best way to divide your money based on your needs and the type of risk you can take. This exercise will make a big difference to your investment success.
Ref: Make Your Money Work for You, by Keon Chee & Ben Fok
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