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Archive for February, 2010

Stop Loss – Vital Tool for Trading

Wednesday, February 17th, 2010

I keep talking about stop loss whenever I get an opportunity. I think stop loss is one of the important strategies you will need to follow to become a successful trader or investor. Stop loss is the strategy where you can define the dollar value at which you want to sell the stock when it keeps going down. If you buy a stock at $100 and willing to take 5% loss if things go south, you can place the stop loss order for $95. If the stock trades at or below $95, your stocks will be sold. This is the simple definition. You can place a stop loss order to sell the stock either at market or at a given limit price.

It’s hard to close a position at loss. But, think about how much more you will lose if the stock keeps going down. Almost everyone gets emotionally involved when they invest in the market. Although the common wisdom dictates to keep the emotions out of the market, it’s hard to do so. Stop loss will keep your emotions out of trading or investing.

Case in point. Few weeks ago, I had a position in SWM (Schweitzer-Mauduit International). I opened the position when the stock was at $80 and placed the stop loss at $76. As you can see from the chart below, I got stopped when the stock kept going down. It was annoying when you see a stock failed you. Few weeks later, stock plunged to $47. It’s going to take very long time for this stock to come back $80 or even $76.

Remember: Losing $5 is better than losing $45.

Set Realistic Expectations When Investing

Tuesday, February 16th, 2010

Investing your money is a vitally important step to reaching your financial goals. When you set financial goals you certainly have to make your goals realistic and not off the wall or not attainable. The same thing should be done when you set your investment goals. Many people look at the potential surrounding certain investments and decide that they will achieve that highest result themselves, when that is not a realistic expectation at all.

In order to understand what you are doing when you invest you should first understand the definition of investing. Investing is the act of committing money or capital to something with an expectation of obtaining a profit or additional income over time. Basically, investing is making your money work for you and your family’s future. Being wise with your investing¬†throughout your life¬†can really help set up your future and make things a lot easier for you and your entire family.

Realize that when you invest your money there will always be a trade off of some kind. If you are looking for the highest returns possible you will also have to deal with a much higher risk level. At the same time if you would like to get into an investment that has little or no risk you should also understand that your returns won’t be too terribly high. Most people should balance out their portfolio with some amount of risk, but not too much.

Though the stock market and other asset classes can go through great stretches where you may earn 25% or more in a single year, never start believing that will be the norm. The fact is in finance everything works in cycles and when one asset does well another will be doing poorly. Over time you need to realize that even the best of investments can’t earn a ridiculously high amount. Keep those expectations in check and you’ll have a much healthier investment portfolio.

Dow Jumps Higher on Greek Rescue Reports

Tuesday, February 9th, 2010

Today the stock market is roaring higher as reports of a possible bailout of the debt-rattled Greek financial system spearheaded a wave of buying on Wall Street. Reports are that Germany is looking into helping out Greece by developing a rescue plan that will be aimed at rebuilding both the Greek system and the slumping Euro. Certainly the whole Euro zone is starting to feel some heat of late because of the huge drop in the Euro since December.

Increasingly of late there has been talk of a European debt crisis because of the terrible situation that Greece is in. It seems the whispers we are starting to hear are that other countries are starting to realize they can’t afford to have Greece in such a bad position and a European debt crisis is a very real possibility if action isn’t taken.

This affects the United States market and the overall global market because of the global economy in today’s world. The simple fact of the matter is there is no way that Europe could have a widespread debt crisis and it not hurt the American economy. The stock market in the United States has reacted very negatively of late to the news of the worsening situation in Greece, so today’s news is definitely a reprieve for the market.

While today’s rally is a nice one and it is news driven, the United States stock market will not be driven by this news in the long run. Rather it will be the productivity, or lack of it, from the American economy. It will be the employment picture, which is still rather cloudy right now. It will also be the consumer confidence and retail sales, which will indicate how the consumer is doing. Don’t get caught up in one day’s movement from a news event such as this one too much, because over time it will be the fundamentals of the economy that matter most.

Be very wary of “Free Trial Offers”

Monday, February 1st, 2010

In today’s economy each individual needs to pay even closer attention to their finances than normal. In a poor economy with over 10% unemployment one of the worst things that can happen to you is falling prey to a scam artist. Scam artists absolutely love this type of economy because people are more desperate and it is easier to lure them in. It really is sad that a bad economy brings them out in full force, but it is reality and every consumer needs to understand this. Right now probably the biggest scam out there that many consumers will fall for is the “Free Trial Offer” scam. Simply put these free trial offers aren’t at all what they seem to be on the surface, and it is very easy to lose a lot of money in a short amount of time with these scams.

Free trials aren’t always a bad thing, but in this era it is wise to ask extra questions and know exactly what you are getting into. How do free trial offer scams work? Often they will tell you that you can cancel at any point, when in reality you cannot cancel until after you have already been charged several times for the product or services. One of the best examples out there today is the Acai Berry Free Trial Scam. Acai Berry is all the rage right now when it comes to its nutritional value and its ability to help a person’s health. In fact there is a site solely dedicatedto letting you know about Acai Berry Scams and how to avoid them. Generally what happens with this scam is they get you signed up and get your credit card information, only to not allow you to cancel until later, and even when you try to cancel you are often placed on hold for hours at a time.

Free trial offers often aren’t what they seem, and in the end the one who ends up hurt is the individual who is scammed. Be very careful with free trial offers in this environment.

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