Several years ago, most people never would have admitted to not having a position of some sort in China. Chinese companies were all the rage at the time; their markets were exploding, growth was in the double-digit domain and even when people started getting a whiff of a recession domestically, China’s growth was still close to double-digits. Avoiding this part of the world in your investment portfolio was a silly oversight.

However, China did slow down. And so did the returns. Yet China still presents a tremendous amount of opportunity, even though investments that come from this part of the world have performed negatively so far this year and even all of the last year. In other words, investing in China involves the risk of loss, a risk most investors would rather avoid given the losses they endured in the past several years to begin with. However, these three investment suggestions will help investors avoid the risks associated with investing in China and over the long-term provide the types of returns that investors have come to expect.

1. Invest in Mutual Funds or Exchange Traded Funds. Regardless of which way one decides to go, funds provide a tremendous value to the every day investor. From professional asset selection and management to quantifiable experience or expertise, investing in China through mutual funds or exchange traded funds ensures that the investor is getting nothing but the “best.”

2. Invest in domestic companies that have a tremendous investment in China themselves rather than investing in Chinese companies individually. Without living or spending a tremendous amount of time in China, it becomes extremely difficult for the average investor to decipher the good, favored or even healthy Chinese companies from those that will turn out to be money losers. Take the automotive industry for example. The average investor probably could not tell whether Chery is a better investment than Geely. However, most investors could tell whether General Motors is a better investment than Chrysler (General Motors has a huge focus on Chinese automobiles). Investing in domestic companies that are heavily invested themselves in China makes a great deal of sense.

3. Avoid chasing returns and stick to the basics of investing. Rather than following the latest day trading favorite, if one must invest in authentic, Chinese companies, invest in companies that have the fundamentals to back their value. Investing in “popular” trends almost always results in losses, so sticking to the basics will ensure such risks are at least minimized.

Ultimately, investing in China comes with a fair share of risk. Investing in the ways outlined above will help minimize such risks and provide the investor with a better investment experience.

–> May is Small Cap Funds month at MutualFundSite.org.

Chris has more than 17 years of financial services experience. He currently manages a website about Novaform Mattress Sale discussions at NovaformMattressSale.com.