{"id":78681,"date":"2022-09-16T16:58:00","date_gmt":"2022-09-16T20:58:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=78681"},"modified":"2022-09-23T13:15:01","modified_gmt":"2022-09-23T17:15:01","slug":"risk-averse-investor","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/risk-averse-investor\/","title":{"rendered":"How to Build a Stock Portfolio: Advice for Risk-Averse Investors"},"content":{"rendered":"\n

Are you a risk-averse investor? What kind of stocks should you invest in to mitigate the risk of losing money?<\/p>\n\n\n\n

Perhaps the first rule of thumb for any kind of investing is to build a portfolio that reflects your tolerance of risk. If you have a low tolerance for risk, you should pick secure stocks that already have a track record of success.<\/p>\n\n\n\n

Here’s how to build a low-risk stock portfolio, according to Peter Lynch.<\/p>\n\n\n\n\n\n\n\n

Build Your Portfolio Based on Your Risk Tolerance<\/strong><\/h2>\n\n\n\n

To create a portfolio you feel comfortable with, take into account the risk and gain associated with each stock type, recommends Lynch. Then, acquire stock types that give you a risk vs. gain ratio you can live with. The risk versus gain ratio for each company type is:<\/p>\n\n\n\n

Low risk, low gain: <\/strong>Slow-growth companies<\/p>\n\n\n\n

Low risk, moderate gain: <\/strong>Dependable companies<\/p>\n\n\n\n

Low risk, high gain: <\/strong>Hidden-treasure companies (provided you\u2019re sure of the company\u2019s assets) and cycle companies (provided you understand the company\u2019s cycles)<\/p>\n\n\n\n

High risk, high gain: <\/strong>Fast-growth companies or underdog companies<\/p>\n\n\n\n

Building a Low-Risk Stock Portfolio<\/strong><\/h3>\n\n\n\n

In I Will Teach You to Be Rich<\/em><\/a>, <\/em>Ramit Sethi recommends distributing risk among various types of stocks<\/a>. He adds that distributing your assets intelligently to mitigate risk is more important than finding perfect companies to invest in. Therefore, risk-averse investors should spend more time thinking about the risk distribution of their portfolio than researching a particular company. 

Sethi also breaks stocks into different categories than Lynch and recommends investing not in slow-growth or dependable companies, for instance, but rather in domestic or developed-world international stocks. He specifically recommends using the following asset distribution<\/a>:
<\/p>\n\n\n\n