MAIN Your Money Investing

Five Tips To Downside Protection

Just as you would save for a rainy day, it is important to prepare your investments for stormy times, even when the weather is good and markets are strong.

One way to do this is to consider the downside protection of an investment. When researching where to invest your money this RRSP season, the experts at Saxon Mutual Funds suggest the following five tips:

1. Remember markets are cyclical. The length of a business cycle ranges anywhere from six to ten years. If you are investing for the long term, it is critical to ensure your portfolio is prepared to handle a downturn in markets.

2. Understand that some mutual funds provide more downside protection against capital loss than others – and it should always be an important consideration when selecting an investment.

3. Research a fund's investment style – is it growth or value oriented? Value investments tend to be less volatile and can provide more downside protection in addition to upside returns on your capital investment.

4. Consider a fund's performance over the long term, and make sure to examine its performance in all market conditions.

5. Avoid chasing trends and "hot" investments. Many high yielding investments are more volatile and can deliver extreme negative returns in a downturn. If it's "hot," it often means that all the good news is already reflected in the stock price and there is nowhere for the stock to go but down.

More about investing for the long term around the Web:

Tips for growing a nest egg

Investor Tips: Investing Wisely

Portfolio Analysis and Advice at SmartMoney.com

also see in Investing -> A Guide To Safe Investing Online

Discount Brokers for Average Investors