Protecting your investments, your money is a basic element of safe investing. Taking action before your investments are at risk is the key to not just a conservative investment strategy but to any investing. Unless you are a day trader, which most of us are not, your investments are at risk to sudden events, calamities caused both by nature or man, actions by politicians or even sudden bad news about one of the companies or group of companies with which you have placed part of your financial future.
Such events that could send your positions tumbling include: While many software programs can tell you when to buy or even when to sell, the challenge that affects most of us is what do we do to protect ourselves without having to watch the markets every hour or even every day? What can we do when all we want to do is manage our investments once a week or even just occasionally? In other words, is it even safe or practical for most of us to be investing in the markets? And what about our retirement accounts? One method is to always play it safe and confine yourself to conservative investments. But following this investment philosophy will limit your ability to grow your money.|Following this investment philosophy will limit your ability to grow your money.} A moderate investment strategy will usually provide both safety and strength gains. You may miss out on some of the quick rapid rising stars but you are less likely to also experience major losses.
A key to safe investing and protecting your investments is to use \” stops\”.
There are two types of stops:
1. Purchase – which means if the price of your symbol drops a certain amount from what you paid for it – you sell.
2. Trailing or High – which means that once the symbol starts going up and then drops a certain amount from whatever high it has reached since you purchased it – you sell.
You can set up the stops with your broker or on the broker’s online site so they will kick in whenever necessary. There are different philosophies in setting up your stops:
a. Based on percent.
b. Based on a set dollar amount.
If you want to limit any potential loses to a specific amount, then you would base your stops on a certain specific amount such as if the symbol goes down 50 cents or $ 1.25. This would fit with a conservative investment approach. Most investment authors generally recommend setting stops based on percent. Popular recommendations are 7 – 8 % or even 10 %. Some investment software programs allow you to perform backtesting that can then tell you what stop settings to use to achieve the best results based on the group of funds, stocks or ETFs you may be used for your account.
Part of the key to using \”stops\” is not to the panic of wonder what to do when your positions sell when your \”stops\” kick in. The best course is simply to make your next decision in the same time frame and the same way as you normally do. In other words, if you look at your portfolio weekly than even if your stops caused a position to sell on Tuesday, wait until your normal review time on Saturday to decide whether or not to buy a new fund or to just let your money sit in cash for a while.
Following these principles of safe investing using \” stops\” and making new decisions at a ‘regular’ time will not only protect your money, your investments, but keep you on safe investment course of strong profitability.