CONTROLLING RISK BY BALANCING INVESTMENTS

As I mentioned in an earlier post, I'm faced with some risk from rising interest rates due to investments in bond funds which could suffer from higher interest.  However, I have taken steps to reduce the risk involved in some of my higher yield investments by investing in individual stocks with a history of raising dividends.  While these stocks currently have a lower yield, they are not in much danger of going out of business and should hold up much better than some of the high fliers during any market downturn.   Stocks with a history of raising dividends usually fair much better in market setbacks, since investors tend to hang on to issues when they're expecting an upcoming dividend payment.  

Then too, when investing in stocks with rising dividends, the yield on your original investment can grow quite dramatically.  Say, for example, you paid $10 per share for a stock with a 5% yield.  You would earn 50 cents per share during your first year.  Let's assume that this particular stock has a history of raising its' dividend each year and continues to do so by 10 cents per year for the next 10 years.  At the end of 10 years, you would be earning $1.50 per year in dividends on an original investment of $10 per share, which works out to a whopping 15% yield on your original investment!

So if you have higher yield and higher risk investments in your portfolio, it would be wise to balance out some of the risk by investing in stocks with a history of increasing dividends each year.  That's what I've done with my investments.  While I have some very high yield, higher risk funds, I've balanced that out with investments in lower yield low risk stocks with a history of raising their dividends each year.  While you can't avoid risk with the stock market, you can greatly reduce risk by balancing out your investments.