Protect Your Retirement Account

Protecting your retirement account while still allowing it to grow is easier than you think. Safe investing for your future can be accomplished if you take a few critical precautions.

These precautions do require you to exercise some control over your retirement account. This doesn't mean you have to devote all your time and energy to it, but at least 20 minutes a week or an hour once a month will be enough to protect your account and sleep soundly knowing you are following a path of safe investing.

The critical steps or rules are:

• Diversification
• Stop Losses
• Choose

Diversification

Putting all your eggs in one basket, everyone knows, is never a good idea.

This is no different than investing in just bonds, or like my mother-in-law, putting all her money in one stock. AT&T was a great investment until it was broken up into separate companies. Likewise, furniture companies might have been great until the last recession came along.

Whether you invest with mutual funds, ETFs or individual stocks your retirement account has a better chance of growing without major losses if it consists of a variety of positions. These holdings should be different, not necessarily different mutual fund companies, but of different industries or businesses.

Five to eight investment positions will give a good level of diversification. And the diversification should include positions that will include growth potential along with those providing stability.

Stop Losses

Profitable investing requires selling.

Let me repeat that: profitable investing requires selling. Unless you sell a fund or ETF, profit is never realized. Yes, on paper it may be worth more than it was when you bought it, but until you actually sell it, there is no real profit.

Since almost every stock or fund goes down at some time, it is essential that when you buy a fund, for example, you also realize you are going to sell it.

A principle of safe investing is to set "stops". This means that somehow with your online broker, over-the-phone broker or via investment software, you are going to say, "when this ETF drops X% it should be sold."

By setting stops you protect your retirement account from dramatic losses and ensure you will make a profit when a position, even your favorite stock, starts to go down. Without "stops" you can suffer dramatic losses - like many did during the 2007-2008 recession.

Choose

The choice of how you protect your retirement account is yours. Just like picking which streets to drive on, or which busses to take, the route for protecting your retirement account is yours to choose.

Whether you decide to use investment software or an investment advisor or your broker, the choice is yours.

In any case to secure your financial future you need to be sure your money is protected.

• If you choose an investment advisor - does she put 'stops' on each investment position? And do you agree with these stops or his 'stop' philosophy? How will she diversify your account?
• If you choose to allow your broker or an account administrator to manage your future, the same questions apply: will there be 'stops' and diversification that is agreeable to you?
• If you choose investment software so you can pick the route your financial future follows, will the investment program allow you to set 'stops' on your holdings? Can you diversify with multiple positions or strategies? Will it, perhaps, even give you a market exit signal for when the market is in a broad decline and you need to move your money elsewhere?

By choosing a route to protect your retirement account your will be less likely to suffer major losses in the future and more likely to reap strong profits and meet your retirement goals.