If you decide to invest your savings in equities, it is for a very specific purpose, which is none other than to achieve notable returns that go to your checking account. The more there are, the better for your interests, there is no limit in the financial markets. But it may happen to you that the evolution of your actions does not develop as you would have initially planned. This is an unwanted situation in which your first measure will be to protect your savings.
Having a handicapped operation is common among small and medium investors, even among the most experienced. Any economic data, business results, or corporate movements can derail the expectations created after formalizing the purchase in the markets. It is practically impossible to avoid it, but in this article you will find some of the keys so that things do not go further and lose a lot of money in the operation.
First of all, you should consider the term to which your investments are directed: short, medium or long. Depending on this variable, you will be able to use some strategies more than others. And above all, apply a very useful advice in these cases, which consists in investing only that money that you are not going to use in a more or less reasonable period of time. Not in vain, if you ignore it, you will have more than one problem to face the expenses that arise at some point: payment of debts, tax obligations, or the payment of the rent of your apartment.
Securities with liquidity
They are not very recommendable scenarios, since if your stock market situation does not go through good times, you will be forced to carry out a terrible operation in most cases. And surely with many losses, which in its subsequent sale will disappear from your assets. To avoid this, a solution to this problem may lie in buy stocks with high dividends, with an average annual return close to 6%. This trading strategy will bring you many advantages when you have to face a payment or expense. The reason is that they will pay you a fixed remuneration, between 1 and 4 times a year, which will help you to meet small expenses.
But the really worrying thing will happen to you when you see how your actions are in negative territory. Certainly a pleasant sensation, far from it. You will not know, on many occasions, what to do with your shares, whether to sell them assuming their losses, keep them in your portfolio, or directly exchange them for another security that has higher expectations of revaluation, and also has a good technical aspect. It will be a very committed decision that you must make in a very fast period of time, in no more than 2 or 3 days. If you do not want to see how the handicaps generated so far can become more acute in the coming months, with a much deeper hole ...
Eight tips to reduce losses
It will be the moment to make a decision, radical in most cases, analyzing the status of your personal accounts. With one objective, which is to help you make the most correct decision in each case, and where a series of tips will be pointed out that will be very useful to focus your operations on the equity markets. Even assuming that you will always have the last and final decision on your investment.
First key: enter a stop loss order
When you go to formalize your operation to buy the shares, you should not forget to place an order that limits the possible losses that the investment may generate. They are the increasingly popular order of stop losses that are used to protect you from large falls in its price. To execute it, it will be highly recommended that you analyze up to what level of depreciation you can reach. In some cases it will be 2%, in others up to 5%, but not much higher.
In this way, in the downtrend of the stock markets, you will prevent the corrections from deepening further and run the risk of losing significant amounts of money. Even that you can't assimilate it. Not in vain, It will always be better to leave you 3% of the savings, not 10%. The corrective movements that occur will have to be cut from the beginning, and face the position that you have made a mistake.
Second key: change investment strategy
This scenario, so unwanted for your interests, may have developed as a result of your mistake. You will still have time to correct the mistake and positively channel your investment. The strategy before this approach would consist of changing the value, and directing yourself to others that show a better technical aspect to take advantage of their possible revaluations.
The swap operation between different securities will initially be carried out with losses as a result of the sale made after the failed operation. Nonetheless, you can stop the depreciation of your savings in a radical way. And on the other hand, you will opt for a safer proposal in terms of the evolution that it may take in the following trading sessions.
Third key: diversify your investment
To avoid notable indentations in your investment portfolio, you should never allocate all your capital to a single listed company. And less if it is speculative, or at least produces a wide volatility in its prices, more than normal. It is true that you can earn a lot of money in the operation, but it can also be very expensive if the downtrend takes over your movements.
Diversification in investment is the simplest recipe you have at hand so that this situation does not occur in the coming months. For it, you must develop a reasonable and balanced investment portfolio that takes into account different sectors, companies, and even it would also be highly recommended to include other equity indices. As a consequence of this strategy, you will be able to limit losses with exquisite efficiency, especially when the one affected by these movements is a single specific security.
Fourth key: do not risk excessive money
If you are not very clear about the proposal that you have formalized in the financial markets, you better not spend all of your savings. If it is between 20% and 40% of the total, it will be more than enough to protect you against unfavorable scenarios for your interests. With smaller amounts it will always be easier to bear losses.
This new investment strategy can be complemented with the previous recommendation, opting for a wide selection of stocks that make up your portfolio more effectively. It is also desirable that many companies from the most defensive sectors of equities are present: electricity, highways, food, etc. It will be the best made passport to avoid corrective movements being more pronounced and prolonged.
Fifth key: avoiding bearish scenarios
There is no greater antidote to ensuring that your investment portfolio does not depreciate than refraining from taking positions (buying) in clearly bearish scenarios. For it you will have to analyze the stock markets through the charts, where you will clearly see its technical aspect. And it goes without saying that the values in free fall will never be the object of your analysis to carry out any operation. It is the worst possible scenario that can occur on the stock market.
And especially damaging are the operations carried out, when a security breaks with its supports. If this scenario occurs, quite frequent on the other hand, you will have no choice but to apply a sell order immediately, but you want part of your capital to disappear in a few trading sessions. It is the golden rule that all stock market analysts advise, without exception, to avoid that large capital gains flood your investment.
Sixth key: do not set goals for the very short term
The periods of permanence in the stock market are very important, and can condition the evolution of the investment. Not surprisingly, if you go long-term you can always take more risks, and as a consequence, keep them in your portfolio for a few years, without having to sell the shares for the needs of your checking account.
It is true that you are not going to invest your savings to leave them in inheritances for your children, of course not. But in principle, It is also not advisable that you consider very short deadlines that can be blown up in the face of any adversity. Directing them to a medium period of time, between 1 and 3 years, can be an excellent precautionary measure so that your investment proposal does not turn out negatively.
Seventh key: learn the mistakes of the past
Surely you have already been through this situation. If so, it will help you not to repeat them, and learn the lessons that have marked your career as a small investor. You only have to meditate where you have erred, so that the same thing does not happen again. You will come to the conclusion that to earn a good performance, you will have to have gone through very unfavorable situations for your interests.
Even if you do not feel safe and confident to carry out the stock market operation, it is most advisable that put your savings in the hands of professionals so that they know how to manage it in a more optimal way. From your own bank they can help you design a safer investment model, and in this way protect the invested capital.
Eighth key: do not despair, it is the bag
And finally, think that you take a very powerful risk by investing your contributions in a market as unique as equities. It is dynamic and with strong fluctuations in its prices. And if you want more security, it will be better to go to other financial assets, mainly from fixed income, although their performance will be lower. But at least they will guarantee you a minimum income.