No investor wants to get so much upset in their portfolio
during a market crash. The worst of the stock market crashes to happen was in
2008-2009 when most people’s stock values lowered to half. However, the stock
market still remains one of the best ways to grow your wealth and with good
strategy, you could protect your investment portfolio effectively. Here are a
few things to remember.
1.
Backup
The stock market has its own grey areas and an investor does
not need to be too black or white about their investment decisions. You could
always keep some of your money for backup just in case some of your investments
fail. Ensuring a part of your investments remain liquidated helps reduce the impact
of market downturns. As damages are easier assessed, the investor can then
focus on using the downturn as an opportunity for profit growth.
2.
Limitations
Investors are free to hold on to their stock as long as they
want, but they need to put a limitation on their stock ownership. A wise
investor will sell the stock once it becomes devalued to a certain level. For
example, if you put 25% of your purchase value as your limitation, a £100 stock’s
limit would become £25. You would sell that stock once it reaches that value. When
you limit your losses at 15-30%, you have a chance to recover from your losses.
However, when you sell your stock during a sudden upturn, you can’t take
advantage of the increase.
3.
Put Options
Put options are similar to stock futures except it allows an
investor to sell the stock at a certain price to any other investor. For
example, you could have purchased stocks with a price of £20, then you’ve
decided to sell the stock if its value lowers to £25. The put option allows you
to sell the stocks at such fixed amount regardless of market changes. This is
beneficial because an investor could predict the profits they could get
precisely.
