Many people do not understand risk management. Here is a simple guide you can refer to.

1.  Stop losses - You set them within your broker’s site to make sure a certain stock does not go below a certain price, usually by 8 - 10%.

2.  % of Money at work - If you only have half your money at work, you only have half the risk.

Example of how this works:

For argument’s sake, let’s say you have $100,000. If you were to invest 50% of that money, which would be $50,000, you would have cut your overall risk down to 50%.  That means if tomorrow every stock you had went bankrupt, you would still be left with $50,000 in the bank you did not invest with.  If you are an investor, you should be putting stops on each stock. Usually you will buy on pull backs and put your stop loss at 8% on each stock.

If you only have $50,000 of $100,000 invested, your risk is only 50% and if you put your stop losses at 10% your overall risk is only 5%. To some people this can give great comfort at night knowing they have a tremendous upside, but also have a low risk downside.

Playing around with these types of scenarios can give you different risks and rewards. If interested, I encourage you to see what investing 75% of your money with a 10% loss, etc. will do to your risk/reward. Risk management should always be apart of your stock game plan.