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 Every stock and mutual fund investment should come equipped with a feature called a 'Stop Loss'. Unfortunately, most brokers only have that feature available on some stocks listed on some stock exchanges. Stocks listed on other exchanges, or those that do not have that feature at all, do not have the capability of monitoring price fluctuations on behalf of the consumer.
This is unfortunate because many investors rely on other professionals (analysts) to keep an eye on particular investments and notify them when it is time to sell a particular issue. Just as is the case in many areas of life, timing is everything.
A Stop Loss is the method used by a consumer to establish a threshold when a stock should be sold. A Stop Loss should be associated with each individual purchase, or issuance, of stock. When a stock is purchased, a Stop Loss is identified based on the amount invested. Should the stock price drop to the specified Stop Loss amount, then the Stop Loss feature would automatically activate and the stock would be sold. Thus, the consumer has cut his or her losses. During the performing life of a stock, a Stop Loss can be set at any time by specifying a specific Stop Loss amount. Then, should the stock drop to this amount, the stock would be sold.
A better method would be to have a way of tracking a stock's value, and to allow the consumer to specify a Stop Loss percent (versus amount). Then, any time the issuance drops, from its highest value attained by the Stop Loss percent specified by the consumer, the consumer would be alerted to the drop. In this manner, the consumer could have an entire portfolio being monitored regularly and not have to keep submitting specific threshold amounts in order to sell an issue. More importantly, this method allows the consumer to lock in achieved gains and be notified to sell an issuance before principal has to be given up. If a consumer has a particular liking to a stock, the stock could always be purchased again when the price levels off.
This same concept can apply to mutual funds. The mechanisms currently available to monitor mutual fund pricing fluctuations and to take corrective action on behalf of the consumer are minimal. The individual has to be particularly careful the mutual fund does not have restrictions on selling interests in a particular fund or restrictions on withdrawing all or a portion of the funds from the mutual fund company. Some mutual fund companies allow the consumer to move funds within the mutual fund company, but penalize them for withdrawals or investment in funds outside of the mutual fund company.
About the Author - Stop Loss Information and Tips
Mr. Jersey is the General Manager for 2050 Systems, LLC. 2020 Systems, LLC is a provider of Income Management Applications Software for Consumers. |
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