“Do no harm”

The phrasing Dudley used in asking Congress to preserve key regulations underscores the imperatives of the measures he his trying to preserve. Many of the core financial regulations in place today are a direct result of the 2008 crisis – which was itself a direct result of lack of sufficient regulation and oversight. The effects of the financial crisis were far-reaching and deep. We all experienced the negative effects and there are still people trying to recover what they’ve lost. It’s been a slow climb back to stable levels, but our economy is rebounding and investor activity is healthy; in fact, Wall Street indices have reached record highs over the last year. A return to normalcy could not have been achieved without the financial regulations put in place following the crash. While it seems that a review and potential overhaul of current measures is likely, eliminating the regulations that have helped us recover would not only be unwise, but could actually cause real harm to our economy. Fed experts also warn that financial deregulation can be a slippery slope, leading to massive unwinding of protective measures.

Key Financial Regulations

While Dudley did agree that some current regulation warrants adjustment, the key regulations maintaining a healthy financial industry must remain untouched. Among the key financial regulations, he listed standards upholding stronger capital, liquidity, and clearing must be kept in place.

Profit/loss plans: What are they?

Profit/loss plans provide investors with an overarching set of limits that serve to determine the maximum loss or gain an investor might experience on a certain stock. It is especially important for investors to learn how to contain losses and learning from past losses is crucial for preventing them in the future.

Making a Plan

Investors first need to draw some lines in the sand, before setting out making a profit/loss plan. More than just setting a limit on losses (the easy part), investors must also set a limit on total gains (the hard part). Most investors will start hearing the “caa-ching” of cash registers at the potential of high gains on an investment, but reservation is vital for smart investing. Don’t get carried away. Investors must also be careful not to devise a profit/loss plan meant to be applied to all investments in a portfolio. Just as investments differ, so to should profit/loss plans that account for them.

Putting Your Plan in Place

Once you have determined benchmarks for gains and losses and identified risk factors, it is time to put your plan into place. It is important to remember that stock-brokers will not allow one security to have two different sell orders entered on it. You must decide what is in your greater interest to protect; gains or losses. Most investors would put loss prevention over gains and, in this case, will apply stop-loss orders. Stop-loss orders are standing orders directing brokers to sell a stock once it gets to your predetermined maximum-loss benchmark (remember, from your profit/loss plan?). Alternatively, if your stock ends up appreciating and comes within reach of your maxim-gains benchmark, you can simply change the price on your stop-loss order enabling an immediate sale of your stock.

Staying Disciplined

Investing is all about keeping a clear head and being conservative–which may prove difficult given man-kind’s penchant for acquiring wealth. It is important to stay disciplined in adhering to your profit/loss plan and, despite what that voice in the back of your head tells you, it is better to be safe than sorry.