{"id":19383,"date":"2025-08-13T11:52:09","date_gmt":"2025-08-13T11:52:09","guid":{"rendered":"https:\/\/finderica.com\/?p=19383"},"modified":"2025-08-13T11:52:09","modified_gmt":"2025-08-13T11:52:09","slug":"3-tips-to-avoid-disaster-investments","status":"publish","type":"post","link":"https:\/\/finderica.com\/?p=19383","title":{"rendered":"3 Tips to Avoid Disaster Investments"},"content":{"rendered":"<div>\n<p>When I was a kid, my family was solidly middle-class. My dad was an assistant principal in public schools, and my mom didn\u2019t work until I was almost out of the house. We had everything we needed and some things that we wanted. It was a great way to grow up. It instilled a work ethic and an appreciation for the value of a dollar that I still have to this day.<\/p>\n<p>It also made me very careful with my money.<\/p>\n<p>When I was in my early 20s right after college, I was living in New York City and working an entry-level job, so I had to watch every nickel.<\/p>\n<p>A girl that I was dating broke up with me because she always wanted to go to nice places and do expensive things and expected me to pay for it. When I resisted, she sought out greener pastures. I was bummed because I liked her, but I wasn\u2019t about to take on a bunch of credit card debt for a girl I\u2019d been seeing for six weeks.<\/p>\n<p>Crisis averted.<\/p>\n<p>The next year, my wife and I got together. Her upbringing was very similar to mine, she has a tremendous work ethic, and she isn\u2019t a big spender. We usually agree on financial decisions, big and small.<\/p>\n<p>Now that I\u2019m older and more established, I don\u2019t have as hard of a time spending money as I did years ago.<\/p>\n<p>That being said, when I invest or trade, I am very protective of my capital.<\/p>\n<p>All investing and trading carries risk. I am very aware of what the risk is, how much I should be compensated for taking on that risk, and how much I\u2019m willing to lose if things go wrong.<\/p>\n<p>In fact, thinking about things going wrong is how I approach investing and trading.<\/p>\n<p>When I was young, it was all about how big of a profit I could make. Now that I\u2019m older, while I certainly expect to make money, preservation of capital is very important to me.<\/p>\n<p>Whether I\u2019m buying a safe investment like a bond or trading a stock that I only expect to hold for a few hours, I know before I click \u201cbuy\u201d how much I\u2019m willing to lose and how to ensure I don\u2019t lose more than that.<\/p>\n<p>I always imagine the worst-case scenario and go from there.<\/p>\n<p><a id=\"jump\"><\/a>I think about things like\u2026<\/p>\n<ul style=\"padding: 0; margin: 0px 0px 0px 40px;\">\n<li style=\"margin: 21px 0px 21px 0px;\"><em>What if the market crashes and doesn\u2019t rebound for a few years?<\/em><\/li>\n<li style=\"margin: 0px 0px 21px 0px;\"><em>What if the stock drops 90% on unexpected news?<\/em><\/li>\n<li style=\"margin: 0px 0px 21px 0px;\"><em>What if the option becomes worthless?<\/em><\/li>\n<\/ul>\n<p>Here are a few practical steps to avoid a disaster when things don\u2019t go your way.<\/p>\n<p><strong>Position Size<\/strong><\/p>\n<p>The most important thing you can do is to set an appropriate position size.<\/p>\n<p>If I\u2019m trading an option or penny stock, I assume it will go to zero. (It probably won\u2019t, but it\u2019s safer to assume that it will, because every once in a while, it does.)<\/p>\n<p>So if the most I\u2019m willing to lose on the trade is $2,000, then I will only buy $2,000 worth of the stock or option.<\/p>\n<p>For something with intermediate risk like a dividend stock or established growth stock, I may use a 25% trailing stop. If I\u2019m willing to lose $2,000, that means I can invest $8,000, and if it goes down 25% from the start, I\u2019ll get stopped out with a $2,000 loss.<\/p>\n<p><strong>Use Trailing Stops<\/strong><\/p>\n<p>Trailing stops are excellent tools to limit your losses. They\u2019re not perfect \u2013 if a stock gaps lower and moves below your stop, your loss could be more than 25%. But generally speaking, they are effective ways of managing risk.<\/p>\n<p>For those who are unfamiliar with trailing stops, you simply choose a certain price or percentage below your entry point that represents the amount you\u2019re willing to risk. If the stock trades at that price, you sell your position at the next available price. It could be a little lower if the stock is falling hard, or it could be a little higher if the stock upticks.<\/p>\n<p>You can also change the stop to protect your profits or lower your risk. For example, perhaps you start with a 25% trailing stop, but as the stock goes higher and you have a decent gain, you tighten it to 10% so that a winner doesn\u2019t become a loser.<\/p>\n<p><strong>Remember Why You Bought the Stock<\/strong><\/p>\n<p>There\u2019s a saying that goes, \u201cDon\u2019t let a trade become an investment.\u201d It means if you buy a stock because you believe it will rise in the short term, don\u2019t hold it long-term if it doesn\u2019t go higher.<\/p>\n<p>If you bought a stock because you saw a signal from a technical indicator, are trading a certain strategy or system, or even got a hot tip, but then the stock doesn\u2019t do what you expect by the time you expect it to, sell the position.<\/p>\n<p>Hope is not a good trading strategy. It rarely works out.<\/p>\n<p>You can also turn that maxim around. If you bought a stock as an investment to hold for years because you like the company\u2019s fundamentals and then it suddenly shoots higher, that doesn\u2019t mean you should grab the gains and walk away.<\/p>\n<p>Great companies become giant winners in a portfolio. Just because a stock rises 20% in a short period doesn\u2019t mean it can\u2019t triple or even be a 10-bagger over the years. You never want to cut your winners short if the fundamentals still hold up.<\/p>\n<p>Use a trailing stop if you need to, but don\u2019t sell a long-term investment just because you have a gain.<\/p>\n<p>The best way to improve your investing and trading results is to not lose money. Take the necessary steps to minimize the pain when a stock doesn\u2019t do what you want it to.<\/p>\n<\/p><\/div>\n<p><script>\n  window.fbAsyncInit = function() {\n    FB.init({\n      appId      : '555402891275842',\n      xfbml      : true,\n      version    : 'v20.0'\n    });\n    FB.AppEvents.logPageView();\n  };\n  (function(d, s, id){\n     var js, fjs = d.getElementsByTagName(s)[0];\n     if (d.getElementById(id)) {return;}\n     js = d.createElement(s); js.id = id;\n     js.src = \"https:\/\/connect.facebook.net\/en_US\/sdk.js\";\n     fjs.parentNode.insertBefore(js, fjs);\n   }(document, 'script', 'facebook-jssdk'));\n<\/script><script>\n    (function(d, s, id) {\n      var js, fjs = d.getElementsByTagName(s)[0];\n      if (d.getElementById(id)) return;\n      js = d.createElement(s);\n      js.id = id;\n      js.src=\"https:\/\/connect.facebook.net\/en_US\/sdk.js#xfbml=1&version=v3.1&appId=555402891275842&autoLogAppEvents=1\";\n      fjs.parentNode.insertBefore(js, fjs);\n    }(document, 'script', 'facebook-jssdk'));\n  <\/script><br \/>\n<br \/><a href=\"https:\/\/wealthyretirement.com\/financial-literacy\/3-tips-to-avoid-disaster-investments\/?source=app\" target=\"_blank\" rel=\"noopener\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>When I was a kid, my family was solidly middle-class. My dad was an assistant principal in public schools, and my mom didn\u2019t work until I was almost out of the house. We had everything we needed and some things that we wanted. It was a great way to grow up. It instilled a work<\/p>\n","protected":false},"author":2,"featured_media":19384,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"rank_math_lock_modified_date":false,"footnotes":""},"categories":[348],"tags":[485,796,9,251],"class_list":{"0":"post-19383","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-retirement","8":"tag-avoid","9":"tag-disaster","10":"tag-investments","11":"tag-tips"},"_links":{"self":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts\/19383","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=19383"}],"version-history":[{"count":0,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts\/19383\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/media\/19384"}],"wp:attachment":[{"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=19383"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=19383"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=19383"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}