The stock market moves fast, and if you have your money invested in the stock market, that means your money will move fast, too – and possibly right out of your fingers – if you don’t keep a close eye on it. So, what do you do when you want to go somewhere far away, kick your feet up, and just move slowly for a while? Here are some tips for what to do with your stock portfolio while you are on vacation:
Stop loss order. This is your protection against significant losses during your absence. Simply place instructions with your broker – in the form of a stop loss order – to sell a stock as soon as it dips below a pre-determined value. Set your stop loss price to an amount that is under the current trading value (about five percent below is a good rule of thumb, unless you are holding onto a particularly volatile stock, in which case you might want to provide even more of a cushion). As soon as the stock’s price fluctuates below that amount, your order will be executed, with no further action required on your part (after all, you’ll be sitting pretty on the beach, right?).
Trailing stop. This is a variation of the stop loss order that you may want to use if you have a long-term stock holding that has been growing steadily. Here’s how it works: Whereas a stop loss order is based on a fixed amount (you want to sell your $32 stock the moment its value drops to $29, for example), a trailing stop order is based on a percentage of the stock’s value (you want to sell your stock when its value drops fifteen percent below the market price, for example).
Limit order. You can also purchase new stock holdings while you are on your vacation, by way of the limit order. Say you’ve had your eye on a particular stock for a while, just waiting for the right time to buy. A limit order leaves your broker with instructions to purchase shares of that stock (a number you specify) once the stock’s value drops to the price you are willing to pay for it.
Going on vacation does not have to mean that your precious stock investments are left unattended to. It does, however, mean that you will have to put some extra time and thought into your vacation planning. Be sure to make use of these powerful tools – the stop loss order, trailing stop, and limit order – to protect your investments while you are away, and then you can focus on what vacation’s really about: relaxing and having a good time.
About the Author: Tiffaney Matheus is currently using a virtual stock market simulator to practice trading, placing fictitious orders, and to get a general feel for how the market works before starting her more aggressive portfolio.