Posted on May 29, 2008 by Amol Chavan

Investing in stocks is risky since there are many uncertainties associated with the ability of a business to generate profits. Hence there is no control on the returns but an investor has control over managing her/his risks.

Portfolio diversification is a straightforward way to reduce exposure to business specific risks. It simply means that one should not keep all his egg in one basket. Invest in a diversified  set of stocks spanning different businesses. Equity risk does not add up as you spread the capital over a larger number of stocks.

Another way to handle risks associated with buying too high or too low at a given point in time is to spread ones investments across time. Never invest lump sum in the stock market. Spread your investments over a period of time. This is normally referred to as steady investment