How to Limit Your Stock Market Losses

Are you feeling alarmed by the massive drop in the stock market last month? That event shocked and surprised many investors who didn't see it coming, and instilled feelings of wariness in those who were thinking about investing in their own financial futures. Whether you lost some money or just feel hesitant about investing in the future, you might be happy to learn that there are ways to participate in the upside of the stock market while limiting your losses.

Traditionally, investors have been advised to take a “buy and hold” approach to long-term financial planning. Under this plan of action, investors purchase stocks, rely upon the efficiency of the market, and hold these assets for the long term. Sure, there might be dips and rises that inspire both dismay and excitement, but over the years a gradual profit is earned

However, for many investors, the promise of an eventual profit isn't much comfort after a big drop like we saw last month. Trusting in market efficiency might not make much sense when the market isn't efficient! If you're wondering how to potentially prevent such losses in the future, engaging in tactical portfolio management might be the answers to your problems.

Unlike the typical “buy and hold” scenario, tactical portfolio management allows you to actively analyze and respond to current market conditions. It's a more dynamic way to manage your assets, helping you anticipate changes in the market and potentially prevent losses.

Rather than buying and holding for the long term, you can respond to current market conditions and allocate across classes depending upon your own risk tolerance and desire for growth. You may already have a diversified portfolio, which is a good thing, but tactical portfolio management takes that concept one step farther by continuing to analyze and diversify your assets.

During times of intense change, the old “buy and hold” philosophy might not be the best strategy for you. If you're interested in a more dynamic, active approach to managing your assets, talk to your financial advisor about tactical portfolio management to potentially guard against losses.