Joseph Stone Capital Insights: Managing Risk and Limiting Losses in a Portfolio

No investment strategy can eliminate risk or guarantee against losses. What investors can control is how much risk they take and how it is spread across a portfolio. Joseph Stone Capital outlines several principles widely used to manage risk.

Diversification. Spreading investments across asset classes, sectors and individual holdings can reduce the impact any single position has on a portfolio. Diversification does not ensure a profit or protect against losses in a declining market.

Position sizing. Limiting how much of a portfolio goes into one investment, especially a speculative one, helps keep a single setback from becoming a major loss.

Matching investments to time horizon. Money needed in the near term generally belongs in more stable, liquid holdings. Illiquid or higher-risk investments, such as private placements, are usually more appropriate for capital that can stay invested for years.

Understanding liquidity. Some investments cannot be sold quickly or without a discount. Knowing in advance how and when an investment can be exited is part of managing risk.

Regular reviews. A portfolio can drift from its original allocation as markets move. Periodic reviews help confirm the mix still fits the investor's goals and tolerance for risk.

Joseph Stone Capital believes the most important risk conversation happens before an investment is made: what the investor can afford to lose, how long the money can be committed, and how the investment fits the overall plan.

Related Insights: What diversification does and does not do · How stop orders and stop-limit orders work · All Insights

Disclosure: This material is provided by Joseph Stone Capital, LLC for informational and educational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security. It is not investment, tax or legal advice and does not consider any individual's financial situation or objectives. Investing involves risk, including the possible loss of principal. Private placements and other illiquid investments are speculative, are suitable only for investors who can bear the loss of their entire investment, and may be available only to accredited investors. Past performance is not indicative of future results. Joseph Stone Capital, LLC is a member of FINRA and SIPC. Investors can review the firm on FINRA BrokerCheck.