Friday, 1 July 2011

Six methods to reduce your investment risk
(Part 6 of 8)

[4] Understand that nobody can predict with certainty when markets hit bottom or are about to crash: You should never act blindly on someone else's advice, no matter how brilliant their track record is.

Everybody makes mistakes and, as a general rule, it is better to trust facts than opinions. Listen to wise individuals, but always check things for yourself.

[5] Protect your assets with reasonable stop-loss orders: Professional investors also make wrong decisions, but they possess enough flexibility to admit their faults.

If they purchase shares of one company and the price goes down, they usually prefer to sell them at a small loss rather than wait to see if their price climbs back to the previous level.

A stop-loss order is an instruction to liquidate your investment when its price reaches a certain level. Some investors are willing to take a loss of 10% before admitting that they have made a mistake.

Know your limits and establish a clear strategy to protect yourself from catastrophic losses.

To be continued in the next post.


[Image by Randy Son Of Robert under Creative Commons Attribution License. See the license terms under]

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