Investment Risks and Exit Strategies

 
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The 4 Most Dangerous Investment Risks[1]=

What are the four dangerous investment risks?

1. Being too conservative (being too cautious to take a risk), so that your hard-earned savings don't keep up with inflation.

2. Being too aggressive (selling too fast) , so that you end up losing your shirt or blowing up part of your portfolio.

3. Trying to time the market. Study after study has shown that no one can consistently time the market[2]. However, it is still possible that someone can time the market successfully but his or her market-timing method is not covered by the above mentioned studies. Consequently, it is inherently difficult for any serious study to prove that market timing is impossible. On the contrary, a hedge fund with a successful historical performance of market timing can claim more credibly that it can time the market.

4. Unwisely turning your money over to a money manager [3] (takes money from customers and spends it on the stock market for the client) who loses your wealth, slowly or quickly.

The Trailing Stop Strategy

In the stock market, there must be a strategy that makes it methodically possible to cut losses and let winners ride. Using a trailing stop strategy creates the best chance of outperforming the markets.

Trailing Stop is defined as: A stop loss order set a specific percentage below the market price that follows the market trend.

  1. InvestmentU.com
  2. Market Timing
  3. The Truth About Managed Accounts
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