You all know what CYA stands for. Of course, Cover Your Assets.
And everyone does it. You have protection against losing your car in an accident. You have protection against being sued from that car accident. You have locks on the doors to your home to protect against theft and personal injury. Question. Do you have a lock to protect from loss in your retirement portfolio?
Bet you didn’t even know there is one. You sure aren’t going to hear about it from your stock broker or financial planner. If there is such a thing why hasn’t he told me? Maybe it is because it is too expensive.
No, there is no charge for this type of protection and your brokerage company will do it. It is free. Then why don’t brokers and financial planners provide this as part of their service? The simple answer is it is too much work. If you decide to use the service they will then have to watch your account.
Oh, did he say he was going to watch your account? Unless your account in seven figures or close to it you do not appear on his radar screen. The average broker has 300 accounts. Could you watch what is going on in each one if you had his job? It is not possible so there must be a way to protect your money. Yes, and it is automatic. When your stocks are going up and you are making money you don’t want to give back those profits, do you? Of course not. There is a simple method known to every broker and financial planner, but you must insist it is done – or you will transfer your account to someone who will. Money talks and he will understand that.
First you must determine what your risk level is. Are you willing to give back 5, 10, 15% of the price of your stock when it starts down? If you say 10% then each week tell your broker you want an Open Stop Loss Order placed on the closing price of each Friday (or Monday , Tuesday, whatever) as it moves higher and not to reduce that price.
This way he does not have to watch all the different stocks you have in your portfolio and you are protected against any big losses. He may not even want to do this and ask you to place those orders which you can easily do on the Internet.
Instead of trying to figure out where or when to sell your equity you let the price action of your stock tell you when it is getting weak. There are many ways of placing Stop Loss Orders and you may wish to use another method. Many can be found by using a search on Google by typing in the words “stop loss orders”. Your library should have books on the subject.
For a person who is working or cannot take the time to follow the market this is the best way to protect your investments. Consider it a lock on your profits. Go back and see how this would have worked if you had done it for the past 5 years. You would be money ahead.
CYA – cover your assets.