On navigating the treacherous seas of investing.
Investing, like any other field, has its risks. Tradesocio has been a long-time proponent of risk management in order to mitigate the dangers of investments, and for the most part, completely eliminate it all together.
The biggest danger in investment is what is known as “drawdown” .
A drawdown is a measurement of decline from an assets peak value to its lowest point over a period. The drawdown is usually expressed as a percentage from top to bottom. It can be measured on any asset including individual stocks or sectors. However, it is most valuable as a measurement of portfolio risk.
To put it in simpler terms, drawdown is the act, process, or result of depleting
Drawdowns destroy investment capital and often shatter an investor’s confidence. Sometimes it even causes investors to lose their motivation to continue investing because a drawdown, if it’s big enough, causes a loss in investment capital.
The worst part about drawdown is recovering from it, to explain this, we have to make a correlation table to demonstrate it.
It takes an 11% gain to recover a 10% loss. Not a problem.
It takes a 25% gain to recover a 20% loss. Harder.
It takes a 43% gain to recover a 30% loss. Problem.
It takes a 67% gain to recover a 40% loss. Big problem.
It takes a 100% gain to recover a 50% loss. Devastating.
It takes a 300% gain to recover a 75% loss. Catastrophic.
It takes a 900% gain to recover a 90% loss. You’re Starting Over.
Five years of 15% annual gains followed by a 50% loss leave you back to where you started 6 years earlier. Nine years of 10% annual gains followed by a 57% loss (2007-09 bear market) puts you at break even for the entire decade. That’s why thinking about your time horizon relative to your investment plan is of absolute importance.
This highlights the paramount importance of risk management in investments.
Proper advisory is the first step in risk management, if you’re investing correctly & in accordance with market data, there is little chance you can sustain a loss.
Implementing a tactical asset allocation plan that adapts to change is another.
Tradesocio managed to come up with a killer feature in its Bruno suite, it is called the “Equity Protection” feature.
What EP does for you is that it monitors your portfolio in real time and acts automatically to intervene, when necessary, in your portfolio and trading actions.
If a trade is about to take place and that particular asset is showing signs of depreciation, the EP feature kicks in, halts the operation and displays a warning explaining why this trade may not be in the best interest of an investor.
This is one of the many features that Tradesocio integrated in its Bruno suite to promote safe and secure trading and in turn, make investing more approachable and safer.