Believe it or not: everyone that has invested their money and built up a portfolio has the same long-term goal rattling around at the back of their brain. Everyone. Everyone wants to preserve the capital they’ve built up. That’s the aim first and foremost. It’s about being clever. About being on the button. It’s about never losing the money you’ve invested. And that means protecting what you have at all costs.
Of course, for most investors, they think that means selling any investments the moment they start to lose value. But this is not a good strategy at all. It’s a much better idea to be aware of what you have in your portfolio and where you okay with enduring some losses in order to boost your overall wealth.
The point is: it’s impossible to avoid risk completely. That’s part of the investing game. However, there are certain strategies you can employ to protect your portfolio that little bit more.
1. Diversification Is Everything
The most fundamental, crucial and cornerstone strategy you need to use is diversification. There are no two ways about it. A portfolio that’s been blessed with clever diversification will almost always outperform a concentrated portfolio, especially in a market downturn. It’s about owning a large number of investments across a range of options to reduce the unsystematic risk you’re open to. It’s as simple as that.
2. Stop Losses In Their Tracks
Another great strategy to have in place is called stop losses, which are designed to protect your investments against the dreaded falling share prices. The most popular of these is called hard stops, which involves triggering the sale of a stock at a fixed price that doesn’t change. For instance, when you buy a stock for $11 a share with a hard stop of $9, the stock is automatically sold if the price drops to $9. It uses automation to act fast so that nothing can change while you’re asleep or busy.
3. Get Married, Stay Put
In the same way, you have insured your biggest investments in life – your home, your business, your car, your MacBook Pro etc – it makes sense for you to protect your retirement nest egg. That’s where the married put options strategy comes in. It’s a way to insure the stocks in your portfolio. Here’s the best part though: while your downside risk is limited, the upside potential is unlimited, meaning the higher the stock goes, the more money you make. Winning.
4. The Dividend Secret
For some reason or another, investing in dividend-paying stocks is probably the biggest secret when it comes to protecting your portfolio. But the great thing about dividend-paying stocks is they offer up a drastically large chunk of a stock’s total return. And, sometimes they are responsible for the entire amount. When markets are in decline, dividends offer up a bit of a cushion and provide a certain protection against risk. This means a much lower level of volatility.
And there we have it. 4 ways you can protect your investment portfolio and stay wealthy.
