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Automating Investments vs Risk Management

Asked by: jo@spm 84 views , , ,

You wrote recently on Managing your risks in stock market re stop losses etc. However, I alway hear about automating investments (set it and forget it). How can you do the two? If I am socking away $200 a month into mutual funds, how can I do Stop Losses? I am not yet investing, I need to work on the Emergency Fund but I am reading, studying and preparing for the day.

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    Pinyo on Jun 02, 2010

    Using stop losses tend to be suitable to different type of investors than those that automatically invest on a regular basis. For these latter type of investors, stop losses can actually be counterproductive because stop losses cause you to sell when the price is low rather than buy more.

    For the type of investing that you’re doing now — i.e., adding $200 a month into mutual funds — I wouldn’t worry about stop losses. You should be more concern about picking the right asset allocation, choosing funds that best represents your asset allocation, and rebalancing your portfolio every once in a while.


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