Minimise risk through diversification
The return on an equity investment is dependent on the long-term success of the issuing company. On the long term, it is likely that an equity investment will generate a better return than a fixed-income investment, despite share prices sometimes rising and falling drastically.
The risks in equity investment are related to the general performance of the equity markets and the success of the issuing companies. Investments in foreign shares also constitute an exchange rate risk. Equity investors will gain a return from the dividends paid on the shares and from a rise in the shares' prices.
You can minimise risks by diversifying. You can reduce the company risk by spreading your investment over several companies and the market risk by investing some of your assets in fixed-income instruments. Funds are an excellent help in diversification. In addition, it is worth remembering time diversification. It means that shares should be bought and sold in several lots over a long period of time.