Okay, you have your investment portfolio allocated among stocks, bonds, real estate, etc and you have at least 20 investments with no more than 4 – 5% invested in a particular item. When do you sell a stock, bond, etc. You need a strategy and the best one I have found is trailing stop losses.Say you have a stock you bought for $10 a share. You decide to keep a 20% stop loss on this stock. if the stock ends the day down 20% from when you bought it, or $8, you sell it the next day. But this is a trailing stop loss, so if the stock goes up to $15 a share, now your stop loss is 20% of the high, so if your stock ends the day at $12, you sell the next day. Waiting until after the close cuts out the intraday fluctuations that occur in the market.So you sold your stock for $12, giving you a profit of $2. You lost some profit on the deal, but gave your stock enough room to continrue to grow. Say the stock went down to $13, then the next day, jumped to $20; now your stop is $16 You [...]
Brian’s Financial Musings
As I said yesterday, taking a big loss on one investment idea can wipe out a pretty good investing year. Portfolio Allocation is really a two pronged attack. First, it is important to be invested in a wide range of assets; stocks, bonds, real estate, precious metals, commodities and cash. You can further break up the stocks and bonds into various catagories. Stocks can be large capitalizations, small caps, international, utilities, etc. Bonds can be corporate, state, municipal and federal government, and so called ‘junk bonds’. Stocks can also be allocated by industries to further diversify. It is important to remember that all assets don’t rise and fall in value together and to devisify by different catagoriesand industries will lower your portfolio’s risk of loss.Next you want to be sure to not put all your eggs in one basket. Make sure you don’t put more than 4 – 5% of you portfolio in one idea. DIfferent stocks in the same asset catagory or industry can act differently. So keeping no more than 1/20 of your portfolio in any one idea will not hurt as much if that idea turns over and dies.Tomorrow I will talk about when you should sell an [...]
Brian’s Financial Musings
Let’s talk a little investing today. I used to have my broker license years ago and learned enough about investing to find out two things – I can’t pick stocks and fell in love with my picks. I still manage my own investments, but subscribe to an investment service to pick my stocks. One thing I did learn from them is when to sell a stock. This may be the hardest thing to learn in investing, but if you don’t learn it, you can wipe out any gains you make overnight. I know I have mentioned this before, but you need to use trailing stop losses and not put more than 5% of your investment money in any one idea. Tomorrow I will go into portfolio allocation and the next day, trailing stop losses.