Unleashing the Power Within: Unraveling the Risks of Stop Loss Orders


4 minutes

Are you ready to embark on a thrilling journey through the world of investing? Buckle up and get ready to explore the captivating realm of Stop Loss orders. These little tools have gained popularity among investors as a means to safeguard their portfolios in turbulent markets. However, we’re here to shed light on the risks lurking beneath the surface and unveil why the mentality of StockFit is all about holding onto your shares for the long haul.

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Picture this: You’re an adventurous investor who decided to venture into the realm of Apple stocks. At a modest price of $28 per share, you made your move. As the years passed, your investment flourished, and by the end of 2018, you found yourself contemplating the use of a Stop Loss order to shield your precious shares from potential losses.

With the cunning aid of these Stop Loss orders, you skillfully managed to sell your shares a few times during your investment journey. But here’s the twist: You couldn’t resist buying them back each time. After all, your faith in Apple as a company remained unwavering.

Source: https://finance.yahoo.com/
Source: https://finance.yahoo.com/

But hold on a moment! Have you considered the implications of taxes? Brace yourself for a reality check. We’re not tax advisors, and this isn’t tax advice, but let’s dive into the subject for the sake of our story’s intrigue. Brace yourself for some simplified explanations, as we won’t delve into every possible scenario.

Here’s the harsh truth: Each time you sell your shares, you’ll have to face the taxman. Whether it’s short-term capital gain taxes for holding your shares for less than a year or the more favorable long-term capital gain taxes for longer holding periods, taxes will come knocking on your door. And guess what? The holding period resets every time you repurchase those shares after a sale. It’s like hitting a reset button on your tax situation. Depending on your income tax bracket, you might find yourself waving goodbye to a significant chunk of your gains—up to a staggering 15%. Ouch!

But wait, there’s more! To truly make the most of your Stop Loss orders, you must possess an uncanny ability to always buy back at an opportune moment. Sounds simple, right? Just consult a price chart, and voila! In reality, however, investors are often wrong more times than they are right, potentially slashing into those hard-earned gains.

Ah, the importance of memory! Don’t forget to periodically update your Stop Loss orders, or else you might find yourself in a surreal and unpleasant situation. Imagine waking up to the shocking revelation that your shares have been sold—not at the intended price, but at a price that could make your heart skip a beat.

Now, let’s take a step back and contemplate the bigger picture. It’s time to awaken the sage investor within you. Remember, gains and losses are only realized when you sell. Imagine a world where you simply hold onto your position without constantly fretting over it. Chances are, you would still witness remarkable gains, if not more. By relinquishing the need for Stop Loss orders, you can achieve a sense of serenity as an investor. If doubts start to creep in about a position, perhaps it’s time to seize some profits by parting ways with a portion of your holdings.

To achieve true harmony in your investment journey, diversify your portfolio wisely. By spreading your investments across different assets, you can mitigate the need to worry incessantly. Our firm belief at StockFit is that Stop Loss orders are not a suitable tool for long-term investors. They demand excessive maintenance, can be easily forgotten, and may lead to a heavier tax burden. Moreover, the unnecessary stress they impose on you is simply not worth the fleeting peace of mind.

So, dear reader, as you traverse the vast landscape of investment opportunities, remember to embrace the long-term vision. Unleash the power within you and strive for a worry-free journey. Who needs Stop Loss orders when you can let your investments flourish without the burden of constant vigilance? It’s time to bask in the delight of true investment freedom.

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