All too often we hear dreadful stories of people losing thousands of dollars in their investments when the markets decide to crash. Losing money is one of the most gut wrenching feelings a person can experience especially because it has an impact on our most basic need for survival.
One of the most basic investing tips that a person can get before investing their hard earned money is “Don’t lose your money!” Have some form of wealth protection.
Back in 2008 during the financial crash, it is estimated by Yahoo finance, that the crash cost Americans nearly 12.8 Trillion dollars. That is a staggering number to comprehend and scary to think that investors as a whole, lost that much money in one year alone.
So how does an individual investor or the “little guy” protect himself from becoming a statistic in another financial crisis like we experienced in 2008? How do we invest to protect our money? These are some good questions to think about and we will touch on strategies or tips you can use, so that you don’t lose your money when it comes to investing. Nothing is guaranteed in life and the same goes with investing however you can greatly increase your odds of KEEPING your money.
So where do we begin?
The best place to start in our humble opinion, in regards to protecting your money, is with ones self. The biggest enemy to your money is yourself. Let us explore why that is.
- If you don’t know your tolerance for losing money, then you will more than likely sell your asset and take losses when you are not suppose too. A exercise we recommend, is to try starting out by playing with practice money first. Open a demo account with a broker and invest playing with fake money and observe your emotions when the price drops. Do this for a 6 months or so and learn about yourself and the decisions you make when it comes to buying and selling a stock.
- Get a plan together that fits your personality when you have figured out what type of investor you are. Maybe you are someone who doesn’t like a whole lot of risk and you are a (Passive investor). In this case you can implement a long term investing plan that applies to low risk investments that you don’t have to watch as often. If you are more aggressive and are willing to take on more risk for higher returns then you are a (Active investor). Both types of these investors have a plan so get a plan together that covers a time span of at least 2 to 3 years minimum.
- Be patient! We mentioned a plan that covers 2 to 3 years minimum and you may wonder why 2 to 3 years? This is because if you are going to invest, you should consider that most investments that carry risk are probably going to need some time to either fall in price or increase in price by a good enough amount that elevates you blood pressure to the point you want to sell. So be patient and give the investment some time to move up and down in price.
These are few tips to begin with and we will cover other subtopics that deal with protecting your assets in the segments moving forward. For now, start with these 3 things and if you need help getting a plan together, You can check out the videos below which take you through the process of getting an investment plan together for higher risk and lower risk investing. This will give you a better idea of questions you might want to ask yourself while you are laying out your plan for investing.
Have an exit strategy!
Now that you have watched the two videos and you have an idea of how to start your investing plan, you are going to need an exit strategy. Exit strategies are VERY IMPORTANT when you are dealing with any investment. With a exit strategy in place, this could literally save you from losing your entire investment and being “out of the game” permanently, until you have saved up enough to invest again and start all over.
An exit strategy simply revolves around one simple question. How much money are you willing to lose on your investment until you say to yourself, “Enough is enough, I’m ready to get out of this investment?”
For example, if you had 10,000.00 that you were going to invest in an asset, you might set aside a number in your head that represents the total amount of money you are willing to lose on the investment before you sell the asset and get out of it. Lets say for this example it’s 3,000.00. You invest your money in the asset and it loses 3,000.00. Instead of WONDERING if you should sell or wait to see if the price goes back up, you immediately sell the asset. A week later the asset drops another 3,000.00.
In the scenario above, you would have saved yourself from losing a total of 6,000.00 on a 10,000 investment by immediately selling. Yes, you lost 3,000.00 on the 10,000.00 initial investment but instead of only having 4,000.00 left over if you would have stayed in, hoping the price went back up, you still have 7,000.00 to still invest with. I don’t know about you but I would much rather leave the investment and walk away with 7,000.00 instead of 4,000.00, wouldn’t you?
So the main point here is that you want asset preservation. You want to keep as much money as possible so you can still continue investing and “playing the game”. What is your exit strategy?
The perfect investment that protects your money!
Unfortunately, in a world of so many different options to chose from for investing, there is NOT a PERFECT investment, that completely protects you from all future losses that may occur. If that were the case, we would all be millionaires and billionaires right?
Is there investments that reduce your risk for losing money? Absolutely and we will cover some of those in future posts on this website. If you can’t protect your money 100% from market volatility, then the next best option would be, to at least increase your odds so that you DON’T LOSE your money right?
You want to increase your odds of winning and lower you risk as much as possible, when it comes to investing long term and for the most part….in the short term as well. The only way to do this is by diversifying your investments. In too many instances, people put all their eggs in one basket and the basket falls apart. Putting all your money in one investment, is one sure way to increase your odds of losing all of your money. Unless you have an exit strategy and are very disciplined with your emotions, we highly advise against doing this.
If you are someone who has money to lose and can AFFORD to take on higher risk, then by all means, go ahead and do as you please. We are just warning against putting all of your money into one single asset because then you have just increased your odds for losing money by 100%. This doesn’t mean you will lose all of your money, it just means you have set yourself up for the right conditions to lose money.
So to recap… just remember, you need strategies for asset preservation. If you have any other strategies or ideas to share, for ways not to lose money in regards to investing, please share with us. There is no wrong or right way to do this, which is the beautiful thing about protecting your assets with investing strategies.