Is Your Retirement Portfolio being Eaten by a Tyrannosaurus Rex?

August 2006

By Al Thomas

T-Rex was the most fearsome of all dinosaurs. He would smash or eat everything in his path. Although he is now extinct.

There is a different type of T-Rex among us today, and it is killing us in another way. This T-Rex is killing and eating our retirement portfolios. In the years from 2000 -2003 it may have devoured  some, or even most of your stock portfolio.

During those years losses were so bad that many people didn’t even want to stop to look at their statements. Is there a way to stop the beast, whatever its name, from completely eating everything? Yes, there is.

In the years since 2003 the stock market has advanced, portfolios have stopped losing and you may have even been able to recoup much of those losses or even get ahead a bit.

[But as you see in our article Reduce Risk to Supercharge Your Stock Investments once your portfolio loses it is much more difficult to make up for not only stock losses but lost time.-editor.]

Everyone needs Loss Protection

Everyone who owns any equities needs to protect them from losses. Obviously, you want to participate in a bull market. But you must know where to run to hide the next time the beast comes out again. The question is, How?

At every point of time, you must decide how much you are willing to risk from here, not from where you were 3 years ago, or one year ago, but today. If you have losses, don’t try to get “even”. You can’t. [See Reduce Risk]. In business this is called a “sunk cost”. You must learn from your past losses but then you have to move on and determine how to stop them from occurring again.

As this market rises you should be following every stock you own with an open stop-loss order. It could be 8%, 10%, 15% even 25%. Whatever you feel comfortable with. Do not try to outsmart the beast. Listen for his return and have your protection in place so it will automatically be triggered when he returns.

If you are cautious and have stop-losses in place the monster will not get you.

None of us knows how long you will be able to graze in the green pastures. It may be weeks, months or longer. If you are cautious and have stop-losses in place the monster will not get you. The market itself will tell you when to run for shelter. No guessing. That is the wisdom of a stop-loss protection.

What if you had Stop Loss protection in 2000?

For those of you, who were in the market in 2000, take a few moments to review your stock and mutual fund holdings before the big crash. Look up the price at that time for each issue.

If you had placed loss protection on each one how much would you have saved? How much better off would you be once the market started going up again? You would have had that much more capital to invest in the lower priced securities.

In a bear market the best offense is a good defense. Don’t let T-Rex get you. Preserve your capital so you can redeploy it at the bottom when the bargains abound. In a Bull Market the key is to make gains and keep them. As Warren Buffet says the key to success in the market is to “Not Lose Money”.

Al Thomas' best selling book, If it Doesn't Go Up, Don't Buy It!  has helped thousands of people make money and keep their profits with his simple 2-step method.

  You can check it out at Amazon.

Reduce Risk to Supercharge Your Stock Investments

Understanding Stock Trading

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