The Secret to Your Financial Survival

Rachel Gearhart
by Rachel Gearhart, Managing Editor
financial survival

Montana is the most densely populated state in the continental U.S...

When it comes to grizzly bears.

I’m no stranger to them, having spent the last six summers fly fishing in Big Sky. On more than one occasion, I’ve seen folks give up their catch to a hungry griz.

Knowing there could always be a bear nearby, I keep a full can of bear-grade pepper spray handy at all times. It’s a precautionary measure I take very seriously.

But it almost ended in tragedy a few years back.

I was hiking in the backcountry when I heard a loud rustle in front of me. So I reached for my trusty can of bear spray...

Heart racing, I pulled out the can and aimed toward the commotion. I was about to squeeze the trigger... when I noticed the antlers.

Yes, I nearly sprayed a moose. A moose that was totally disinterested in me and my shaking can of high-powered pepper spray.

Had I showered him in a fog of hot pepper, things could have turned ugly, real fast.

The lesson here? Even in the wilds of Montana, the biggest threat to your safety is yourself.

The same is true when it comes to investing.

For example, consider how the stock market sold off after Brexit.

Investors heard the bushes rustling... but this time they actually pulled the trigger. Global markets lost $2 trillion in a single day - the biggest daily loss ever.

You know what happened next. Within three weeks, the S&P hit a new all-time high. If you were among those who bailed, you missed out on an 8% rally.

The same thing happened during the 2008 financial crisis. Investors panicked and sold.

But had they stuck to a disciplined investing strategy, they’d be up more than 40% today. (And they’d be up by triple digits if they had bought around the bottom in 2009.)

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Instead, they sprayed the proverbial moose.

The key to surviving in the wilderness and as an investor is the same...

Be precautionary, not reactionary.

In other words, be prepared for the worst. But don’t ever let your emotions cloud your judgement.

Reactionary people are prone to panic. The results can be devastating to an investment portfolio. Just look at the crazy physiological effects of a reactionary response.

Effect of Danger on Decisionmaking

The science is stunning. Fear renders most people physically incapable of thinking clearly and making a rational decision.

The Laboratory of Experimental Psychology at the University of Sussex dug into just how harmful this can be. They found that individuals suffered a 49% drop in efficiency when confronted with a dangerous situation.

In backwoods Montana, that could cost you your life. In the markets, it could cost you tens of thousands of dollars.

Still, you must prepare for whatever may come around the bend.

Precautionary people are aware of their emotions... but they set up fail-safes to keep those emotions from taking over.

In the investing world, trailing stops are a perfect way to accomplish this. They automatically protect your principal when things get rocky.

If you’re a frequent Investment U reader, you know that our Chief Investment Strategist Alexander Green is a big advocate of using stops. In his words:

Among investors who lost money, the biggest reason was usually failure to protect profits and cut losses. Many investors are unaware that they can do just that by using a safe and effective strategy: the trailing stop.

A trailing stop is simply a stop loss order set a certain percentage below the market - and then adjusted as the price rises.

If you trade online, you can set stops on your brokerage’s website. Or you can call your broker.

Either way, you’ll want to familiarize yourself with this tool. Trailing stops keep you from being reactionary... and they can keep you from losing big money in the stock market.

Good investing,

Rachel

Have thoughts on this article? Leave a comment below.

The Closest Thing to a Fuss-Free Investment

Many investors dream of a “set it and forget it” play... the kind of stock they can buy and hold through retirement without giving it a second thought. No muss, no fuss. And while we don’t advocate a completely hands-off approach, you can get pretty close...

You just have to invest in what Marc Lichtenfeld calls “Perpetual Dividend Raisers.” These are companies that have a long history of increasing the amount they pay shareholders. They’re the main focus of his Oxford Income Letter.

Let’s take a look at one of Marc’s longest-standing recommendations, Texas Instruments (Nasdaq: TXN).

A well-known electronics manufacturer and one of the world's leading chipmakers, Texas Instruments has steadily increased its dividend for the past 12 years. And at the same time, its share price has nearly doubled. Even better, Texas Instruments has an A rating in Marc's SafetyNet Pro database.

Texas Instruments is the perfect example of a seemingly boring company that can provide major long-term gains. You likely won't see it all over the front page of Investor's Business Daily or The Wall Street Journal. But perhaps Marc put it best...

"[Let] the buzz on Wall Street be about some other stocks, while Texas Instruments quietly goes about its business, selling chips to the automotive industry and other large industries, and raising the dividend by double-digit amounts every year."

- Alexander Moschina with Marc Lichtenfeld

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