Learning how to invest profitably with limited risk is a common objective for most people. Typically, this implies being able to take advantage of the latest tips from someone who can predict sure winners.

This, of course, is a pipe dream.

And, even for those who have a better understanding of what is involved in making relatively sound investment choices… a rude awakening often awaits their fate.

What you know intellectually about stocks… bonds… mutual funds… commodities… real estate… or any other investment product isn’t worth a hill of beans when compared with your ability and willingness to respond rationally to the ever-changing perception of the market.

The critical question is: How will your personal behavior respond to the behavior of the market as a whole?

This essentially determines the degree of success you will have with your investments. Managing personal finances rationally is the only way to insure survival in the rough… even cruel… times just ahead.

Most likely, you know already that you have to accept some risk when learning how to invest. But, what may not be as evident is that even the riskiest investment can be controlled.

Let’s use the technology crash (2000-2002) as an example. Investors were mesmerized by the extraordinary increase in stock prices from 1998 to early 2000.

Everything techie seemed to be making money. It appeared to the casual and the experienced investor that there was no end in sight for profit. But, without having a predetermined defensive plan that would automatically protect them in a down market… most of these investors suffered dearly.

Was this due to lack of awareness… hypnotic spell… greed… wishful thinking? Or, maybe a little bit of each.

It doesn’t matter. People who thought they knew how to invest just sat and stared as the value of their stocks soared skyward.

And, they kept sitting there even when the markets reversed course and plummeted into a dark hole.

Fortunes were made… and abruptly lost… because people who had yet to master the basics of how to invest believed foolishly that the downward spiral would stop.

But… it didn’t!

Although 2003 showed some improvement, it was too weak. And, both 2004 qnd 2005 were uneventful.

So… was it wrong to invest in technology stocks? Of course not.

But, it was wrong to commit money without first understanding how to invest using a predetermined course of action to protect your profits and limit your losses.

The Number One Rule… Don’t Lose Money Needlessly!

For instance, if a share price goes from $10 to $20, you should commit to sell if the price slides back to $15.

In other words, if the price gives back 25% of its gain… then, it’s time to sell.

No exceptions!

In this example, you would make 50 percent instead of 100 percent. This assumes, of course, you would have sold when the price grew 100 percent.

The fact is most investors would not do this… that is, sell at that particular time.

Instead, they would get greedy as human nature sets in. After all, if you can get more later rather than settle for a reasonable profit now… why not?

This may be human nature… but it usually leads to unnecessary losses.

The point is to remind us that our behavior is seldom… if ever… rational when dealing with investments.

For those investors who only experienced rising markets… corrections were disastrous. Although market cycles can be somewhat predictable… the broad movements tend to be reactionary.

Even the current devastation was predictable. We just didn’t want to believe what was right before our eyes. And, the train wreck that awaits us as we enter 2011 will destroy what little is left in many retirement plans and IRAs.

The public at large still ignores the problems facing us as a nation. But, if you will pay attention and learn how to invest with the right mindset… you can separate yourself from the pack.