This is a reprint of a five part series on investing I wrote about a year ago – tips to let your winners run and protect your downside. Ok, you are in your investments; now when should you get out of them? The answer is the trailing stop loss. When you buy an investment, set a stop loss of 20 – 25% of the investment value; if the asset drops that amount, you sell on the open the next day (this will prevent a sudden drop in the price and rebound, called a whipsaw, from taking you out of an investment by hitting your stop loss then rebounding back above – wait until the close and see if you are still below your stop; also it is not a good idea to log your stop losses in with your broker, keep them in your head or on a spreadsheet.) The 20 – 25% stop loss will keep you in a trade long enough to give the investment time to become profitable without stopping out too soon. The reason to use a ‘trailing’ stop loss is that when the investment moves in the direction you want it to, you move your [...]
CPA Financial Musings: Investing Tips Part 3 of 5 – Position Sizing
This is a reprint of a five part series on investing I wrote about a year ago – tips to let your winners run and protect your downside. When you are investing, an important consideration to minimize losses is to not put too much of your investing capital into any one idea. This is called position sizing. A good position sizing rule of thumb is to limit each particular investment to 4 to 5 percent maximum of your total investible assets (one exception is if you are in a plan that invests in stock of the company you work for and you have investment options, do not invest more than 10% maximum in your company.) This will limit your risk by spreading it out over a bunch of investments. Next time in Part 4, I will talk a little bit about trailing stop losses and how they protect you from major losses. For financial, accounting and tax musings, You can count on us to count for you! Email: bstonercpa@sbcglobal.net Phone: 818-317-6035 Website: www.briantstonercpa.com Android and the IPhone: Has been Featured On https://twitter.com/bstonercpa
CPA Financial Musings: Investing Tips Part 2 of 5 – Asset Allocation and Industry Diversification
This is a reprint of a five part series on investing I wrote about a year ago – tips to let your winners run and protect your downside. In Part 1 of this 5 part series on general investing we discussed that there are ways to limit losses and let your winners run when you invest your money. Asset Allocation is the process on investing a certain percentage of your money in different asset classes, the object being that different assets behave differently – some are going up when others are going down. The object of the allocation is that most of the time most of the assets are going up, so the allocation will over time generate positive returns. Allocation classes are normally stocks, bonds, commodities (gold, silver, land, oil, etc) and of course, cash. A lot of the allocation classes can be further broken down (stocks into large, mid and small cap stocks; most catagories into domestic and foreign investments, etc.) It is best to figure out what percentage to allocate to each asset class, maybe at the first of the year, then a year later check again and rebalance your porfolio to get things back in line. [...]