Editor's note: A stock's momentum is a great asset... until it turns against you...

When that happens, your emotions might tell you not to let go in the hope that things will improve. That's never the right call to make. Taking a minor loss might be disappointing in the moment, but if you want to invest long term, you need to know when to fold.

In today's Masters Series, adapted from the June 6 and October 4, 2022 issues of the free DailyWealth e-letter, True Wealth editor Brett Eversole shares how you can protect your portfolio by following just one rule...

My Mentor's Advice for Preserving Your Investments

By Brett Eversole, editor, True Wealth

"I sold out of everything a couple months back," my uncle told me. "I couldn't take the pain anymore. I was losing more and more money each day."

He wasn't asking me for advice. After all, this was the summer of 2009 – when I was still in college.

He just needed to get what had happened off his chest. And it imprinted a memory in my mind that I can still see all these years later...

My uncle had watched roughly half his net worth vanish. Millions of dollars, earned over decades of running a successful small business – just gone.

He still had plenty of savings left. So while the losses stung (of course they did... even if they wouldn't put him out on the street), his tone made it clear that they were far from the worst of the pain he was feeling.

The worst part was feeling completely lost... not knowing what to do... and feeling so betrayed by the system that he'd never feel safe to invest again.

That fear stuck with him. He sold near the bottom. And he never got back into stocks, not in any meaningful way. He missed out as stocks rallied from the 2009 trough and staged an incredible decadelong bull market.

That's the real danger during a bear market. It's not just the losses. It's the fear that takes over – and the long-term inaction that results.

Stocks are volatile once again. But if you don't have a plan for the rocky road ahead, you're nearly certain to miss the boom that will follow...

The scars of 2008 stuck with thousands of investors.

Money-market funds – basically cash in brokerage accounts – soared to an all-time high in 2008. They rose by roughly $2 trillion in just a couple years. Yet, after the crisis passed, most of that money never moved back into the market. Take a look...

The 2008 bust spooked $1 trillion out of stocks... And most of it never returned.

The worst part is that it was the little guys – folks like my uncle – who paid that price. Those mom-and-pop investors missed out on the chance to repair their battered portfolios in the ensuing rally.

I hope that didn't happen to you. But even if it did, it doesn't have to happen again.

My mentor Steve Sjuggerud taught me how to avoid reaching this point: If you want to protect your investments, there's nothing better than trailing stops...

Trailing stops solve the hard problem of when to sell. They're a mechanical solution. They're not based on emotion... So by sticking with them, you never have to worry about catastrophic losses.

Trailing stops are not perfect, though... mostly because of one fact: Not everyone follows them.

I saw that firsthand when I would hit investment conferences with Steve early in my career. A typical conversation with a reader would go something like this...

Reader: What do you think about XYZ stock right now? You recommended it a few years back.

Steve: We hit our stop and I recommended selling. I'm pretty sure we closed it for a gain. But I haven't kept up with it since we sold.

Reader: Yeah, I saw that, but I couldn't sell. I like the stock. I've just held it.

Steve: I'm sorry to hear that. I really recommend you sell when we issue that advice.

Reader: Anyways, it's down about 50% since you said to close out... What should I do now?

I saw this happen time and time again.

Maybe you've made that mistake yourself. It's easy to sell yourself so well on an opportunity that you can't stomach letting go... Money is emotional, after all.

But the more you let emotion affect your decisions, the worse off you'll be.

If you've never made that mistake, congrats. I'm glad to hear it. But if you have, don't beat yourself up. All you can do now is vow that it won't happen again. Trailing stops should make the job easier.

This is especially true in today's volatile market...

That means you need to focus on the near-term picture. Simply put, "holding and hoping" is always a risky bet. And it's a risk you shouldn't take with your money.

The most important thing you can do in a rocky market is stay in the game... the smart way. You've got to avoid major losses so you can live to fight another day.

We have a simple way to do that and protect ourselves in times like these. It's the No. 1 lesson I learned from Steve...

Always have stops in place. And always follow them.

That means you can't make exceptions. Once you start, you'll do it more and more. Emotion creeps in... And your strategy falls apart.

If you've hit any of your stops recently, then I hope you've followed that advice. But if you haven't sold yet, you still can. You don't have to hold and hope forever.

Instead, follow a system. Make your exit plan... And live to fight another day. It's the surest way in the long term to keep your losses small – and let your winners ride.

Good investing,

Brett Eversole

Editor's note: With the market's recent sell-off, folks are uncertain what the future holds. But Brett believes a great divide is taking shape between the top-performing stocks and the losers... And if you don't have a strategy in place, you could be unprepared for the fallout.

That's why he and Joel Litman of our corporate affiliate Altimetry have joined forces to warn investors of the impending turning point. By using both of their proprietary systems, they've found a group of "Perfect Breakout" stocks that could double your money – or more.