Guarding Your Investment Portfolio Against the Next Downturn

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May 6, 2009 12:27pm ETF BASIC NEWS

umbrellaSAN DIEGO (ETFguide.com) – “What a difference a day made,” is one of the outstanding American songs made popular by the great Dinah Washington. From an investment perspective we might say, “What a difference two months makes!”

If you’ve already forgotten what’s just occurred or perhaps, you’ve been hibernating, let me refresh your memory.

Just two months ago, stocks were in a freefall. As they say in baseball, “They (stocks) couldn’t buy a base hit.” Today, stocks have staged one of the largest rallies in modern history. Since touching March 9th market lows, the total U.S. stock market (NYSEArca: VTI) has rallied by 36%, emerging market stocks (NYSEArca: EEM) are up by a dazzling 50% and international stocks (NYSEArca: VEA) have jumped 40%.

Before suddenly concluding that the worst is behind us, focus on ways to protect your investments. After such a sharp rally, is it time to realize some of the market’s recent gains? What can you do right now to shield yourself from the market’s next downturn?

Let’s analyze some basic investment strategies that can help you to guard your profits.

The Automatic Sale
Many investors have difficulty in pulling the trigger when it comes to selling their investments. And it’s not hard to see the reasons why. After owning a stock, exchange-traded fund, or another type of investment for years, we have the human tendency to become emotionally attached to that investment.

To avoid the internal debate of when to sell your stocks or ETFs, think about using a stop loss strategy. Although it may sound complicated, it’s not. The basic idea is to lock in any gains you may have and to prevent your losses from mounting into the kind from which no recovery can be made. The stop loss sell order triggers an automatic sale of your shares once they hit a pre-determined price. Most brokers will be able to accommodate your stop loss order request. Be sure to ask them.

Full Story: http://www.etfguide.com/commentary/542/Guarding-Your-Portfolio-Against-the-Next-Downturn/



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