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3 Suprisingly Simple Approaches to Protecting Your Portfolio When Investing

Jul 12, 2016

To have a successful series of investments, there is a golden rule that you must follow – lose as little money as possible. The entire investment game is based on preserving as much of your capital as you possibly can.

It is also not just about protecting one or two of your ventures, but instead the entire portfolio. Of course, due to the instability and volatility of the market, it can be quite difficult to manage an equilibrium between losses and profits. Here are some ways to make sure that your finances are protected: 

Non-Correlating Assets


This says it all. In order to protect as much of your capital as possible, you need to have an appropriate mix among your ventures. In particular, you need to invest in fields that have very little to do with one another. For instance, consider buying currency and gold coin investments.


The performance of each of these assets has nothing to do with the others. In fact, when currency begins to devalue, gold actually tends to increase in price. Imagine having both of these assets in your portfolio. Should you begin to lose money with the currency that you are financing, you can make it up with the ventures you have made in commodities. This is usually the most common and effective method for maintaining your capital and protecting your portfolio

Stop Losses


If you have financed a certain amount of shares, you are at risk of losing capital when the share prices plummet. Stop losses act as a shield against this phenomenon. You have a choice between two types of stop losses – hard stops and trailing stops. 

Hard stops are in place to ensure that your stock is sold when it dips to a certain price. This is a fixed price and is not altered. A trailing stop can be determined against dollars or percentages. This type of stop loss moves along with the stock price. When utilized properly, stop losses can help to shield your ventures from a rapidly changing market. 

Dividends


Dividends are typically used to ensure high returns on investment. For a long time, being paid dividends by a flourishing company has been the best way to ensure higher-than-normal returns. This, however, is not the only function of this type of venture. What most people are unaware of is that they can also be used to protect your portfolio. 

One of the reasons for this is that dividends offer a cushion when stock prices tend to plummet. This means that your portfolio is subject to less volatility. It has also been shown that companies which offer significant dividends tend to earn better in the future, meaning that they are a solid investment. Most importantly, perhaps, is that dividends actually act as a hedge against inflation, meaning that they maintain their value.


This is why dividends are a great way to make sure that your ventures as a whole remain quite stable.

It is undeniable that investing brings in a particular amount of risk to your finances. However, this instability can always be offset by the solutions offered above. It is important to protect your assets even as you are making money on them.

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