Diversity, liquidity, and risk management within your stock portfolio

Diversity, liquidity, and risk management within your stock portfolio

Risk Management Within Your Stock Portfolio

Managing a stock portfolio can be difficult even for seasoned investors. There are many elements and variables to consider when managing a stock portfolio and trying to maintain profitability; all while experiencing the highest possible rate of return on your investments.


One of the first things any taught to any new investor is to diversify your holdings, do not put all your eggs in one basket. By diversifying your portfolio, you are hedging against risk, it will not hedge all risk because there are other factors that affect the risk an investor is exposed to, but diversification is one of the most important tools for hedging risk.

By diversifying you are hedging both your losses and your potential gains. My purchasing investments in different areas or industries you also diversify the amount of profit you can make. This, in theory, will average out your entire portfolio to a risk level you are comfortable with, and return that is relative to your risk.

This is why when diversifying your portfolio, it is important you determine the level of diversification you want. Do you want to be heavily diversified, with a very small percentage of your entire portfolio invested in any particular investment, or would you like to have a little more risk applied to your portfolio and only be diversified across a couple of investment? Remember, this level of diversification will affect both your potential losses and your potential gains.

Risk Management for Stock LoansIf you are heavily diversified, you are less likely to incur significant losses because if any single investment goes down significantly, it will only be a small percentage of your portfolio. This is also the drawback because if anyone investment gains value drastically, you will not experience the gains to the same degree because it was only a small percentage of your portfolio.

Simply put, diversifying can help, but also hurt you, and should be considered carefully when developing your investing strategy.


Another variable that affects the profitability of your investment portfolio is your liquidity, or the ability to turn your assets into cash. Being able to turn assets into cash maximizes your opportunities.

If your assets are not very liquid, it could take several days, sometimes longer, to turn those assets into cash. In this scenario, you could need the cash for any additional investment immediately and not be able to come up with the cash to purchase the investment. You could lose out on an investment simply because your portfolio was not liquid.

The importance of liquidity in your investment portfolio is one of the main reason investors look to borrow money against securities they own. Products such as lines of credit against your portfolio are excellent options for making capital available to you anytime you may need it.

With a line of credit, you place your securities as collateral, never having to sell them and always maintaining ownership, but you also have cash available anytime you need it. With a line of credit, you are pre-approved for a certain amount, and then you can borrow any amount up to that approval amount, and you get the cash in a short time since you are already approved.

Managing a portfolio has many considerations, but with the proper research and planning, a successful investing strategy can be implemented. One of the most important factors that affect your success is the diversification and liquidity of your portfolio.

You have to be diversified enough to hedge your risk, but also be liquid enough to capitalize on opportunities as they arise, sometime the best way to accomplish this is through a line of credit.

Having the proper resources at your disposal is invaluable when it comes to investing, and Easy Stock Loans can provide many of these resources.

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The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Some of this material was developed and produced by FMG Suite to provide information on a topic that may be of interest. Easy Stock Loans is not affiliated with the named representative, broker – dealer, state – or SEC – registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

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