Keeping Your Investment Losses Small

The financial world is full of risks and uncertainties. There are tons of products available where you can lose much more than the capital you put in. For example, if you invest $1000, you maximum loss can sometimes be much larger than $1000. Sometimes this is clear, but often marketing leads people to think they can only lose what they invest.

Let's start with some investments where you cannot lose more than you put in (we're going to assume no margin). These include, stocks, bonds, cryptoassets, angel investments, and hedge fund or private equity allocations. Of course, no one wants to lose 100% on an investment, but at least these strategies have a maximum loss.

Now let's discuss products and strategies that can result in unlimited losses or losses greater than your initial investment. Any investment in futures falls into this category for two reasons. First - futures are margined securities by design. Second, most futures can go below zero because they lack a downside bound like stocks.

Certain investment strategies can increase the risk of products such as stocks, bonds, and cryptoassets. These strategies have the potential to turn these products, which typically have limited losses, into investments with unlimited losses. These strategies include: shorting stocks (but not if buying puts), naked calls, and buying on margin.

The probability of huge losses from such risky products and strategies may seem negligible. However, over the long run, this probability will catch up with you and you will face a very large loss. This is not worth the risk, stress, or inevitable loss of capital. Please don't put yourself in situations where you can lose an unlimited amount of capital.

Don't panic if you have investments in any risky products or strategies. Pinnacle can help you exit these positions in a graceful, controlled manner. We will help you find a safer way to achieve a similar position. This will allow you to sleep better and grow your portfolio more effectively.

Lastly, we'll do a comprehensive portfolio cleanup to ensure you don't have anything else to worry about. This goes well beyond making sure you're avoiding risky products and strategies. We'll ensure you have proper asset allocation and asset location. We gear every decision toward maximizing your long-term wealth.