Adding Efficiency to Your Stock Portfolio

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By Maurice Stouse

Branch Manager and Financial Advisor

How often do you associate the word efficient with regards to your investments or your wealth accumulation goals? What does efficient mean? A quick Google search gives the following result:

  • “Efficient (adjective) – achieving maximum productivity with minimum wasted effort or expense (as it relates to a system or a machine). “

Long term stock market investment performance might benefit from efficiency with regards to cost, with regards to taxes and with regards to risk. This article will address adding risk efficiency to your stock portfolio.

How might you use a system for managing the risk in line with your goal, time frame and risk tolerance for a given investment or investment program? As an investor, you first might assess what you’re your loss tolerance is for a given stock investment. Ask yourself if you would sell if the stock fell say 5% or 10% or perhaps even 20%. Once you know this, you can use a strategy known as a “Stop Loss” order for a given stock in your portfolio. The way it works is that should your stock decline, you can have a built- in order that is triggered once a certain price level is reached. So, as an example, if you utilized a stop loss by price and you had a stock you paid $100 per share for, you could enter a stop loss order to have it sell at say at $95, $90, $85, etc. You have the advantage of not having to consistently monitor the price of your stock when you know that an order will trigger at a given loss level. And you have the peace of mind not riding the stock down if the market experiences the type of volatility seen this past December or back in 2008 as examples.

In general, these orders go in to effect once the stock trades through a certain price and then, a market order (sell at the next available price regardless of direction, including further down direction) is entered on your behalf. This is important to note because price movements can be significant during volatile times in the stock market.

These days, many firms also give you the flexibility of using a “Trailing Stop Loss” order for a given stock that you might own. These have the added benefit of entering the order by percentage amount as well as by price. As an example, if you had a $100 stock, you could enter a trailing stop loss to trigger once the stock drops by a certain percentage (5%, 10%, etc). Take note that “Trailing” means that the trigger percentage or price can move up if the stock itself has gone up since you bought it. In other words, this type of order floats, automatically adjusts higher if your stock price increases.

Find out more on how to mitigate risk with stop loss orders as there are many more varieties and important facts you should know before making an investment decision. It can be helpful to call or see your brokerage firm or an advisor and review all consdiderations before proceeding.

Maurice Stouse is a Financial Advisor and the branch manager of the First Florida Wealth Group and Raymond James and he resides in Grayton Beach.  He has been in financial services for over 30 years. His main office is located at First Florida Bank, 2000 98 Palms Blvd, Destin, FL 32451. Branch offices in  Niceville, Mary Esther, Miramar Beach, Freeport and Panama City. Phone 850.654.8124. Raymond James advisors do not offer tax advice. Please see your tax professionals. Email: Maurice.stouse@raymondjames.com.

Maurice Stouse

Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC, and are not insured by bank insurance, the FDIC or any other government agency, are not deposits or obligations of the bank, are not guaranteed by the bank, and are subject to risks, including the possible loss of principal. Investment Advisory Services are offered through Raymond James Financial Services Advisors, Inc. First Florida Wealth Group and First Florida Bank are not registered broker/dealers and are independent of Raymond James Financial Services.

Views expressed are the current opinion of the author and are subject to change without notice. Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision, and is not a recommendation or a solicitation to buy or sell any security. Past performance is not indicative of future results.  Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs. Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.  The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time. Investing always involves risks and you may incur a profit or a loss. No investment strategy can guarantee success.

Holding stocks for the long term does not insure a profitable outcome.