Limiting Investment Losses
July 27, 2010 by Mr. GoTo
Filed under Investing for Retirement
The markets seem to be rallying on some positive economic news from around the world. This is a tenuous rally and many experts believe stocks are still overvalued. The brokers won’t say this, of course. To them, it is always a good time to buy stocks.
Last week the On Retirement blog at U.S. News and World Report published my post on Three Ways to Limit Retirement Losses. I have long preached about risk management for retirement investors. There are ways to manage risk in unstable markets so have a read if you are interested in learning what we have done.
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I think it is an interesting suggestion to target TIPS, I Bonds and SS to cover basic retirement living expenses. If you do that and invest the rest of your nest egg in the market (age appropriate allocation to equities, bonds, cash) you shouldn’t be AS concerned about sudden market drops.
You are correct that stop loss orders on EFTs will mitigate sudden big losses. My concern is that most people panic too easily and cash out too early and then don’t know when or don’t ever get back in. They miss the bounce back gain and stay stuck in low yielding CDs. One point about EFTs that bothers me is in a panic there may be no buyers whereas with an open ended mutual fund the mutual fund company has to buy your shares by law.