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Forget Buy & Hold – Here are 3 Easy Steps to Actively Manage Your Investment Risk

March 16th, 2012

An important debate is still unfolding amongst investors and advisors – Is Buy & Hold dead? Does it really still make sense to buy a stock or ETF and ignore strong signs that reflect increased risk that could seriously threaten returns? While some say “Don’t do anything, just stand there!” others, like SmartStops.net, argue that technical measures can be used to continually monitor equities and market sectors for strong indications of risk. The trick is how to most easily and effectively monitor a broad portfolio and respond to the most relevant statistical trends.

The basic argument is that Buy & Hold is an investment strategy that worked when the economy was stable and consistent growth was the norm, but that was then… Now, we see some degree of stability taking shape, but how long will it last? The S&P index closed today above 1400 for the first time since 2008 and the Dow Jones industrial average finished at 13,252.76, its highest close since 2007! The CBOE’s Volatility index, a.k.a. VIX, closed the week at 13.96 – down 40.3% from exactly a year ago. But let’s not yet forget the recent unpleasantness in 2011, where the S&P 500 finished the year only a point away from where it started, with its highest point up 8% and lowest level down 12%.

The bottom line: if you have stock or ETF investments, don’t ignore them. Make sure you are always prepared to respond when abnormal volatility is present and a downtrend is detected.

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Here are 3 easy steps you can take with SmartStops.net to maintain continuous risk perspective on your portfolio and be ready to take action if needed:

1. Register you portfolio with SmartStops to be continuously monitored
SmartStops.net monitors member portfolios, sending alerts or executing sell orders when a position is at significant risk of further decline. SmartStops exit triggers are calculated each market day using sophisticated analytics that dynamically adjust based on technical market factors, historic trends and optimal exit methodology.

2. React to statistically significant risk probabilities with automated alerts
When you receive a SmartStops RiskAlert, your next step is to take a look at related market news and data. Consider alternative steps you might take such as: selling all or part of a position, hedging with options, buying more (sometimes the market overreacts!), or talking to your advisor.

3. If you are ready to sell, use SmartStops BrokerLink to automatically and immediately lock in profits.
SmartStops.net has partnerships around the world that integrate the intelligently adjusting exit triggers into leading broker platforms so continuous and effective sell triggers can be easily maintained. The latest broker to introduce SmartStops BrokerLink service is TradeKing.

Forget Buy & Hold! If you don’t make the effort to manage your investments when volatility starts to increase and momentum goes negative, you are making the choice to participate in a downtrend that can be avoided. Why participate in major downtrends when you can take action and improve your profit and minimze risk? Services like SmartStops.net provide an easy, effective way to manage your own investment risk.

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Forget Buy & Hold – Here are 3 Easy Steps to Actively Manage Your Investment Risk

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ETF, OPTIONS, Uncategorized



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