Protecting your money like a pro. The end of the 7-year Bull market spurred on by Coronavirus has meant that protecting your money, has never been more important. The following 3 pointers will ensure that you’re protecting your precious cash like a pro:
What you don’t know CAN kill you
When it comes to making money in the stock market, some of the biggest risks are the ones unaware of. The recent pace of the coronavirus sell-down has savage and cause many without a risk mitigation strategy. So it’s time to learn how to start protecting your money during the pandemic.
In some instances, people’s shares are now worth half of what they paid for them. Needless to say, managing your risk is paramount to long term success in the stock market; as host Andrew Baxter says – ‘all big losses were once small losses’, and being able to manage these is key.
Use stop losses, to stop your loss
The title of this risk management strategy is pretty self-explanatory – the idea of a ‘stop loss’ is to stop your loss. If there’s one thing you take from this podcast – always have a stop loss, always! A stop loss, which is an order to sell a security if the price falls below a certain level, is crucial to keeping your money safe and is something any good trader knows to use at all times. Yes, you will take some bark off along the way, but nonetheless you will live to fight another day. One tip that professional trader Andrew Baxter recommends employing – set up your stop loss before you get into a trade to ensure your emotion doesn’t get the better of you.
Put options: synthetic stop losses
Another method that more advanced traders may use to manage their risk is through the use of put options. The best way to describe a bought put option position is like buying insurance on your car. Even though your vehicle is completely written off after a serious accident and its value is worth zero, you’ll still receive the amount you’ve insured for. The same for stocks as investors allow selling an asset at an agreed price even though it may be worth it.
Sounds pretty good, right? The only downside is that like car insurance, this will cost you money upfront. Needless to say, paying for your peace of mind isn’t such a bad idea in these current tumultuous market conditions.
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Diversification: yet another method to managing your risk
As co-host Mitch Olarenshaw outlines – there is a multitude of strategies you can apply to the stock market. Also, the options market limit your exposure and diversify away from your risk. Don’t get us wrong – we aren’t talking about holding twenty different financial instruments to be fully diversified. We mean being nimbler in you’re investing to use some jiggery-pokery to capitalize in the market. Just like you would be wearing clothes, when it’s pouring rain, stinking hot, or snowing – you should wear a different outfit for each situation. Your investment strategy much the same, you need a much different approach to each situation to ensure you come out on top.
Check out some of the advanced strategies that AIE teaches their clients to make money. Quite simply, learning how to do this effectively can make you a fortune.
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How to discover your risk profile
When it comes to effectively managing your risk like a pro in the stock market, there is no one size fits all. Protecting your money will depend on your personality type as a trader. The best traders will not only develop their unique investment strategy but also their own risk profiles to manage these accordingly. For people who may have different levels of experience, different amounts of money, or even just a different appetite, the Andrews team at Australian Investment Education can certainly help you develop this (check out their website). The fact is, you’ll be blown away at what’s inside the onion once you peel it back.