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Managing risk and volatility

Risk management is one of the most important steps when establishing your investment strategy. Most of us have either experienced or heard stories of share market "crashes". So how do we deal with the risks and volatility inherent in share investing?


It's not always a great idea to put all your eggs in one basket by investing all your money in one asset class or type of investment.

Diversification is a way of managing the risk associated with investing. It involves spreading your money across different asset classes and investments, so as to potentially limit the impact of negative events that impact any one asset class or investment.

Diversifying across asset classes may protect you against underperformance in any one asset class. Your asset allocation will reflect how cautious or aggressive your investment strategy is.


Sector diversification

Within each asset class there are various sectors, each of which may have different investment characteristics (for example, mining companies are quite different to financial services companies). Diversifying across various sectors may reduce the risk of exposure to any one sector.

Some sectors with companies listed on the Australian Securities Exchange (ASX) include:

  • Energy
  • Materials
  • Industrials
  • Consumer Discretionary
  • Information Technology
  • Mining
  • Financials
  • Telecommunications
  • Healthcare.

How to achieve diversification

Achieving diversification requires planning and ongoing monitoring. You might need to consider the following:

  • Set a target asset allocation as part of your investment strategy.
  • Use ETFs or managed funds to achieve diversification or get exposure to an asset class if you are only investing a modest amount.
  • Beware single stock and single asset class risk – don't put all your eggs in one basket!
  • Regularly review your investments against your target asset allocation.
  • Revisit your target asset allocation to ensure that it continues to be appropriate for you.

Stop-loss orders

In share trading, a 'stop-loss' order is a sell order that is conditional on the share price falling to a particular level (the 'trigger price'). When the trigger price is reached, a sell order is then placed on the market. Depending on the broker, this may be an 'at limit' or 'at market' sell order.

You'll need to keep in mind though that stop-loss orders aren't perfect – in a rapidly falling market your order may only get partially executed or not executed at all.


Most online brokers will allow you to set up alerts. An alert allows you to be notified (via SMS, push notification or email) when a specific event occurs.

Common types of alerts are:

  • Price alerts – receive an alert when the stock price crosses a specific value
  • Announcement alerts – receive recurring alerts whenever a company releases a market sensitive announcement
  • Volume alerts – receive an alert when the trading volume for a stock crosses a specific threshold
  • Stock goes ex-dividend alerts – receive an alert when a stock's ex-dividend date is approaching.
Things you should know

The information on this website has been prepared without taking account of your objectives, financial situation or needs. Because of this, you should consider its appropriateness, having regard to your objectives, financial situation and needs and, if necessary, seek appropriate professional advice. If a Product Disclosure Statement is available in relation to a particular financial product, you should obtain and consider that Product Disclosure Statement before making any decisions about whether to acquire the financial product. The information contained on this website does not constitute the provision of advice or constitute or form part of any offer, solicitation or invitation to subscribe for or purchase any securities or other financial product nor shall it form part of it or form the basis of or be relied upon in connection with any contract or commitment whatsoever. Any securities or prices used in the examples on this website are for illustrative purposes only and should not be considered as a recommendation to buy, sell or hold. Past performance is not a reliable indicator of future performance. This website may contain material provided directly by third parties. This information is given in good faith and has been derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group nor any of their related entities, employees or directors (together, "Westpac"), nor the Participant, accepts responsibility for the accuracy or completeness of, or endorses any such material. This website may also contain links to external websites. Westpac and the Participant do not accept responsibility for, or endorse the content of, such external websites. Except where contrary to law, Westpac and the Participant intend by this notice to exclude liability for material provided directly by third parties and the content of external websites.