Even after you place a trade, though, your work is never fully done. It sounds cliche, but it's true. Once you have completed a transaction – whether stocks, bonds, mutual funds, or options, you need to take these important steps to make sure that you are prepared going forward. They are simple, but if you forget to do them and need to go back, it can be very difficult and time consuming.
1. Print Your Trade Confirmation
After you've hit “confirm” and you're trade has gone through, many people don't go back and get their trade confirmation. However, this important document shows you the actual price your order was filled at, and as a result, gives you your cost basis for the trade.
Yes, the cost basis rules are changing, but you still need to keep track of what your cost for the transaction is. This becomes essential when figuring out your own profit or loss, and it is very helpful at tax time.
2. Enter Your Trade Into Your Favorite Portfolio Tracking Method
After your trade, and once you get your trade confirmation, you should enter the data into your favorite portfolio tracking method. By doing it right away, you can see how your investment is performing sooner. I personally like Quicken, but you can use any method of your choosing.
In fact, last year I surveyed the readers of The College Investor, and you can read their answers at: How You Keep Track of Your Portfolio.
3. Setup a Stop Loss Order
One of the biggest reasons people are afraid to invest is because they are afraid to lose money. And this can become a paranoia after a trade is placed. As such, you should think about what is the most you are willing to lose on a single trade, and put in a standing stop loss order to protect yourself.
If the amount you are willing to lose is 5%, then put in a stop loss for 5% below your cost basis. This will save you should the price drop and you are not able to get to a computer to execute a trade.
Once all the work is said and done, it is time to relax and enjoy your investment. While it's not like sitting on the beach in Mexico, it should be enjoyable to know your money is going to grow over time. So, relax, don't think about it, and let the market and the power of compounding do it's job.
5. Monitor Your Position Monthly
Finally, make sure that you aren't overly checking your positions. The market will go up and down everyday – that's just a fact of life. You can drive yourself crazy if you try to check on your positions all the time. Instead, make a routine of just checking your positions at the end of each month. If anything drastic does happen, your stop loss order (see step 3) will protect you.
Readers, can you think of anything I'm missing that you should do after a trade? Do you follow any of these steps right now?