By Rita Warren ~
Here’s a simple plan for taking profits if you should be so lucky as to have profit in a stock you own: it’s called “selling the number of shares needed to bring you back to where you started.” Well, that’s not a very good name for it, but it’s a plan my husband and I came up with because he is so risk averse we had to do something or he was going to pull our investment portfolio out of the stock market altogether unless we could capture profits to his satisfaction. If my husband had his say, we’d be in CD’s and fixed income vehicles that pay ½ percentage interest, because his main goal is to not lose principle. We’ve done enough of that already in terms of real estate investment losses over the last three years. There I must agree with him.
But here’s how we diverge: my attitude is more aggressive in that I want to attempt to make up the difference in what we’ve lost by aggressively buying stocks that will go up and make back some of our losses. He is afraid that if we do that, when and if the market takes another tumble, we’re going to have even further losses and he’ll murder me; then he’ll be sent away to prison for the rest of his life and our children and grandchildren will inherit our estate way too early.
So we compromise. I get to continue to buy stocks that I believe – after doing my research as I’ve presented to you in previous articles – will go up and recoup at least some of our portfolio losses, and he has the security of knowing that when those stocks do indeed go up, we can siphon off the profits, put them into a cash account to make sure they are secure and unable to be lost should the market go down. Works for both of us, which is a win-win deal.
Now I know you’re chomping at the bit to know the secret to our happy marriage and successful settlement: here it is: when a stock has made a profit, we sell enough shares to equal what that profit is. Let’s say we settle on 10 percent as our goal. When the stock hits 10 percent, we figure out how many shares it would take to equal that percentage, and we sell that many shares. Then we take that amount of cash out of our brokerage firm (and you should always have free check-writing privileges with your brokerage firm, by the way) and put it in our high-yielding money market (which we have also researched for the highest yielding interest rate, where it can remain safe and sound apart from stock market variabilities. If the stock continues to rise, you can always continue to do this process. You can also set your sights on a higher profit percentage if you like, say, 20 or 25 percent. The point is to skim off profits and bank them somewhere safe.
Speaking of higher yielding money market accounts, I am a firm believer that everyone should have at least one of these type of accounts. Check with BankRate.com for the highest rates nationwide and open one online; it’s easy to do. Make sure it is easily accessible and can be funded through electronic transfers from your regular bank unless you prefer the slower route of sending a check through the mail. You can also set up to fund through your brokerage account, which is probably the easiest way to do it if you’re going to skim profits from sold stocks or portions thereof.
In this day and age, there are all kinds of little ways you can assure yourself of some protection against the vagaries of the volatile stock market and the uncertainties of the world around us. You can’t totally protect yourself, that’s for sure, but you do what you can do, and you’ll feel a whole lot better about yourself by taking these small but helpful steps.