According to many investment advisors, the best ways to invest smarter and protect your investments from downfalls are:
1. A Well Planned Strategy:
You should prepare and implement a clear, properly planned and up to date strategy. You must also understand your investment, risks, fees and other associated costs. The market has seen big companies collapse in recent years because they failed to implement their strategies and follow up strictly. A proper strategy while investing in securities will save you from market drops and gyrations.
2. The Global Economy:
The economy now has become a global economy. Now market downturns anywhere in this world, it affects the much of the rest of the world. You have to be well diversified globally. A well thought out decision making process and disciplined action is necessary to get your portfolio running smoothly in such conditions.
3. Limiting The Risks:
Limiting the risks by using “put options” can save an investor time and money. Puts are excellent trading instruments which guard you against losses by giving you right to sell your specified assets at a predetermined price that is above your loss level.
4. The Use of Mutual Funds and Exchange Traded Funds:
A well chosen mutual or exchange-traded fund can help you sleep better at night by spreading risks across multiple sectors in a single investment.. The losses in mutual funds are mitigated because all these funds are very well diversified by sector, market or asset type. You may want to consider limiting any single stock to ten percent of the portfolio to further reduce risk in your portfolio. You can also analyze your portfolio using risk tools available online at many online brokers and financial websites.
5. Using Proper Order Types to Execute Your Trades:
Use a variety of order techniques when purchasing and selling stocks or options online to save time and get the best possible price. You can trade again and again if you have funds in hand, but if you loss in one trade, you’ve lost those funds for good. Therefore it is wise to know your options when entering orders.
Stop Orders: Also sometimes called a stop-loss order. It is used to trigger a market order if the option price trades moves to a certain level. Stop orders. can be an effective and automated way to exit a losing position while limiting the damage to your portfolio.
Stop Limit Order: Stop limit orders are similar to stop orders except it triggers a limit order instead of market order. Stop Limits are triggered just like a Stop Order, when the stock or option reaches a specified price, however the resulting order is set at a limit. Except in extremely fast markets where the security may trade through your limit before it becomes active, Stop Limit Orders guarantee a price (your limit) after the security reaches your stop price.
Limit Order: These Order guarantee a price but don’t guarantee an execution. In a fast market setting a limit well below the current bid price will generally give you an execution, but limit orders are generally used to capture upside potential on profitable positions in your portfolio where a higher limit is set and once the security trades to that level you receive an execution.
To recap, when managing your own portfolio it is important to have a clear plan, maintain discipline, and utilize all trading strategies and markets. Doing so will help protect your portfolio and help you sleep more soundly at night.