Investing For Average Joes #6

The current market is even more unpredictable than any of the previous year's markets because we have not seen the bottoming-out of the economy yet. The Stock Market seems to have bottomed and is back on a general rise but it could easily slip down again if any more major companies fail. So it would be wise to learn techniques for saving what profits we can gain.

Now that I've covered the basic things to start your investing portfolio, it's time to add tools to keep your money as safe as can be, given the market's current volition. One of these tools is called a 25% trailing stop. It's a bit complicated at first, and can be later, as well, but it is a vital tool to keep losses to a minimum.

Let's say you buy XYZ at $2.00 a share. Calculate 25% of $2.00, which is $.50, and set your stop-loss with your stock manager or stock purchasing site at $1.50. This way, it will keep you from losing more than 25% should the stock drop for some reason. As the stock grows, change the setting so that it keeps up with the current price. You want to keep the mark at 25% of the stock's highest point.

So if XYZ grows to $3.00, 25% would be $.75, so you would change your stop-loss setting to $2.25. In this example, the worst you could do is get a gain of 25 cents per share. If XYZ goes to $4.00, 25% becomes $1, so you set your stop loss at $3 and the worst you can do is a profit of $1 per share. This can be complicated, especially if you are not a math person, but it is necessary and has saved me money several times already this year.

Sharebuilder.com has a stop-loss option for every stock in an account. It can seem tedious to set stop-loss orders for all our stocks but it does two things: It keeps your losses to a minimum and it keeps you aware of your portfolio. Being aware is what could have saved everyone's accounts last October.

In fact, if everyone had had a 25% trailing stop on all their accounts last October, think of all the money that would have been saved! I know 2 people that lost more than 50% of the value of their portfolios and I'm sure you know others, as well.

So let's spread the word and help America keep Her losses at a minimum. Perhaps that's a bit dramatic, but it IS the Speed Of Life, after all. See you next time. Good Investing!!!