- Posted October 14, 2013 by
Should You Be Selling Your Stocks Right Now?
Stock markets (and variations of a price discovery system) have existed for hundreds of years. And the one common thread amongst all historical counts, is that markets tend to crash on a regular basis.
Unfortunately, these market crashes are frowned upon by investors, especially those who take the full force of the losses hoping things turn-around. However, these unsettling events are necessary to establish the true value of something. For those in need of a history lesson, search online about the tulip market crash, and you’ll begin to understand why market crashes are a healthy and necessary function of markets.
Now that we have established the need for market corrections, what can you do to better protect your portfolio from a market crash? Here are 3 tips:
1. Don’t become married to your stocks. One of the most common behaviors investors demonstrate, is to invest a lot of time and effort finding “the right stock”. The problem is that if that stock under-performs expectations, many investors will begin rationalizing why it’s a great company and not accept things didn’t work out.
2. Always use stop losses. Using a stop loss is like having a seat-belt, brakes and an airbag. Owning stocks without using a stop means you don’t think your stock could go down in price. However, events of 2008 tell us otherwise.
3. Manage risk. Do you know how much you stand to lose, if the stock market were to crash tomorrow? Try this: use the percentage losses you experienced in the 2008 crash, and apply that to your current portfolio. If the size of the potential losses scares you, then you are not managing your risk.
Could we be headed for a stock market crash? No one ever knows for sure. And that is reason enough to better prepare your portfolio, so that if a market were to crash in the near future, you would not be experiencing 2008 all over again.