Baziloo Academy Level: Beginner ⏱ 4-minute read

Risk management: protecting your share portfolio

By The Baziloo Editorial Team ·Published on 18 July 2026 at 1.03 pm

Investing in the stock market involves risks. Risk management refers to the range of techniques used to minimise these risks and protect your money. It is an essential step before buying your first shares.

🎯 What you’ll learn

Understanding why risk management is crucial in the stock market
Discover the three pillars of risk management: diversification, asset allocation and stop-loss orders
Learn how to easily work out your risk tolerance
Identifying common mistakes made by beginners

What is risk management?

Risk management is the art of limiting potential losses when investing. On the stock market, prices go up and down. Your aim is not to eliminate all risks (which is impossible), but to manage them so that you can sleep soundly.

Imagine you have 10 000 € to invest. Without risk management, you could put it all into a single share and lose 50 % in a matter of months. With sound risk management, you spread your money across different investments to limit the impact of any unexpected setbacks.

Risk management is based on three simple principles: do not put all your eggs in one basket; set in advance the maximum amount you are prepared to lose; and tailor your investment to your personal circumstances.

The three pillars of risk management

The first pillar is diversification. This means spreading your money across several different investments. For example, instead of putting 10 000 € into a single share, you put 2 000 € into five different shares, or into different sectors (technology, healthcare, energy, etc.). If one falls sharply, the others may offset the loss.

The second pillar is asset allocation. It simply involves deciding what percentage of your money to allocate to shares (risky but potentially profitable), bonds (less risky), or cash (money available immediately). A cautious beginner might put 60 % into shares and 40 % into bonds. A young person with 30 years ahead of them might allocate 80 % to shares and 20 % to bonds.

The third pillar is the stop-loss order. This is an automatic order that sells your security if the price falls to a certain level. For example, you buy a share in 100 € and set a stop-loss order at 90 €. If the price falls to 90 €, the share is sold automatically. You limit your loss to 10 % instead of risking 50 %.

How can you assess your risk tolerance?

Your risk tolerance depends on three factors: your age, your financial situation and your temperament.

If you are 25 and have a stable job, you can afford to take more risk: you have time to recover from a downturn. If you are 60 and approaching retirement, you have less time, and therefore a lower risk tolerance.

If you have savings of 50 000 € and you invest 5 000 €, that’s a sensible approach. If you invest 50 000 € (all of it), that’s very risky. Finally, some people lose sleep when their portfolio falls by 10 %, whilst others don’t. Be honest with yourself: it’s your money.

Mistakes to avoid

Mistake No. 1: investing without a risk management plan. You buy a share because a friend has recommended it, without knowing what you’ll do if its price falls. Bad idea.

Mistake No. 2: reacting emotionally to market falls. When the market falls, panic leads you to sell at the worst possible time. Good risk management helps you to stay calm.

Mistake No. 3: confusing risk management with the absence of risk. You cannot eliminate risk; you can only manage it. Accept this.

📖 Definitions

Diversification: Spread your money across several different investments to minimise the impact of a loss on a single security.
Asset allocation: The decision to allocate one’s portfolio across different asset classes (shares, bonds, cash) in line with one’s risk profile.
Stop-loss: An automatic order that sells a security if its price falls to a pre-set threshold, in order to limit losses.
Risk tolerance: An individual’s ability to withstand fluctuations in their portfolio without panicking, which is linked to their age, financial situation and temperament.
Portfolio: All the investments (shares, bonds, etc.) that a person holds.

💡 A practical example

You have 10 000 € to invest. Without risk management, you put it all into Tesla shares. The share price falls by 40 %: you lose 4 000 €. With risk management, you diversify: 3 000 € in tech shares, 3 000 € in healthcare shares, 2 000 € in bonds, 2 000 € in cash. If tech shares fall by 40 %, you only lose 1 200 € in total, and you still have 4 000 € in reserve to invest if prices fall further.

⚠️ Risks you need to be aware of

Diversification reduces risk, but it also reduces potential returns.
A stop-loss order may cause you to sell at the wrong time if the price rises sharply afterwards.
No strategy can protect against a major stock market crash.
Risk management requires discipline: you must stick to your plan even when you are afraid or tempted to speculate.
Being too cautious (holding 100 %s in cash) exposes you to the risk of inflation: your money loses value.

✅ Key points to remember

Risk management does not eliminate risk; it controls it and makes it acceptable.
The three pillars are: diversification (multiple securities), asset allocation (multiple asset classes) and stop-loss (automatic limit).
Your risk tolerance depends on your age, your financial situation and your personality.
Before investing, draw up a written risk plan: what is the maximum percentage you can afford to lose? At what price will you sell?
Emotions are the enemy of risk management: stick to your plan, even when the market panics.

🧠 Test your knowledge

1. You have 10 000 € and you’re putting all your eggs in one basket. This is an example of:

2. A stop-loss order set at 90 € on a share purchased 100 € means:

Fancy taking it a step further?

Analysise this security in detail on Baziloo — B-Score, risk metrics, price history — and track it in your portfolio.

📊 Explore the values on Baziloo → Ideas to explore All articles

Sources

AMF — Investor Zone (Autorité des marchés financiers) — amf-france.org