This doesn't mean you should sell your investment holdings the moment they start heading south. But you should remain keenly aware of their movements and the losses you're willing to endure. While we all want our assets to be fruitful and multiply, the key to successful long-term investing is preserving capital. While it's impossible to avoid risk entirely when investing in the markets, these six strategies can help protect your portfolio.
The cardinal rule of investing is: Protect and preserve your principal.
Preservation-of-capital techniques include diversifying holdings over different asset classes and choosing assets that are non-correlating (that is, they move in inverse relation to each other).
Put options and stop-loss orders can prevent stem the bleeding when the prices of your investments start to drop.
Dividends buttress portfolios by increasing your overall return.
Principal-protected notes safeguard an investment in fixed-income vehicles.