Are you feeling the sting of a recent investing loss? Don’t panic! A market downturn is an excellent time to reassess your financial situation and see where you can make improvements. As with any setback, an investing loss is an opportunity for growth and development.
Here are six tips for bouncing back after an investing loss: With millions of investors watching helplessly as their portfolios tanked during the Great Recession, it’s natural to feel anxious about the state of your own investments when markets are shaky. In these situations, it’s important not to panic or make rash decisions. Instead, take time to evaluate your current financial situation and consider where you might be able to cut costs or increase savings in order to protect yourself against future losses.
Here are six tips for bouncing back after an investing loss:
Review your portfolio
The most important step towards bouncing back from an investing loss is to make sure that your portfolio is still aligned with your current financial situation and future plans. If you’ve been investing for a while, it’s likely that you’ve experienced a few market downturns, meaning that you have a good understanding of how the market works and what happens when it falls.
This can help you identify any areas of your portfolio that are particularly risky and cause you to lose sleep at night. You can reduce your overall risk by rebalancing your portfolio. In a perfect world, every investment would go up in value every year, but that’s not how the market works. When one investment is having a particularly good year, it’s likely that another investment will be having a bad year. When the market is doing well, it’s a good idea to rebalance your portfolio so that it is once again balanced. This means transferring funds from investments that are doing well (i.e. “winners”) to those that are lagging behind (i.e. “loss leaders”).
Don’t make any emotional decisions
It’s easy to make rash decisions when you’re feeling anxious or stressed. However, in investing, impulsive decisions rarely turn out well. Before making any drastic changes to your portfolio, take a step back and ask yourself whether you’re making a rational decision or an emotional one.
Consider the long-term plan that you had for your investments before the loss happened, and how the short-term decision you’re considering fits into that plan. Be honest with yourself about whether you are making a decision based on anxiety or a genuine change in circumstances. If it’s the former, don’t make any drastic changes to your portfolio. If it’s the latter, you may want to make adjustments to protect yourself against future losses.
Rebalance your portfolio
If you’ve suffered a significant loss, it may be worth rebalancing your portfolio to reduce risk and take advantage of any assets that have dropped in value. Depending on the extent of the loss, you may want to do this immediately, or you may want to wait a few months to see if the market begins to climb again. It’s also important that you don’t rush into any major changes to your portfolio, as it’s important to be strategic when rebalancing your investments.
To minimize the effect that a significant loss has on your portfolio, it’s a good idea to focus on two things: For example, let’s say that you have a portfolio that is split 50/50 between stocks and bonds, but the stocks have fallen more than 10% in value. You want to rebalance your portfolio in order to bring the percentages back to 50/50, but you also want to minimize the impact that this will have on your portfolio. It’s best to focus on the stocks that have fallen the furthest in value, as these are the stocks that will have the least impact on your portfolio.
Consider why the loss happened
It can be tempting to view a significant loss as a personal failure, but this rarely helps the situation. Before making any drastic changes to your portfolio (or your investment strategy), take the time to consider why the loss happened and whether it’s actually relevant to your portfolio.
For example, if you invest in mining stocks and they take a hit because of a trade war between the U.S. and China, the fact that mining stocks are inherently risky doesn’t change. It’s important to understand the underlying cause of the loss so that you’re not tempted to make rash decisions that can hurt you in the long run.
Consider what to do next
Before making any drastic changes to your portfolio, it’s important to consider what would happen if the market continued to decline. How much of a loss are you comfortable with? If you’re happy with the amount of risk in your portfolio, it’s important to remember that the market always eventually rebounds. However, if you’re unhappy with the level of risk in your portfolio and you’re worried that the market may continue to decline, now may be the time to make some changes.
For example, you may have been investing in stocks in order to grow your portfolio for retirement, but now you may want to reduce the amount of risk in your portfolio in order to protect yourself against a significant loss. It’s important to understand that reducing risk doesn’t mean reducing potential returns—it just means reducing the potential amount that you may lose if something goes wrong.
Don’t forget about investing in yourself
When you’re struggling to bounce back from an investing loss, it can be easy to focus entirely on your portfolio, but it’s important to remember that there are other areas of your life that need attention. Bad financial decisions are often the result of poor time management, and it’s important to take the time to make sure that you’re managing your time well. It’s worth auditing all areas of your life to see if there are any areas that you can improve.
This can help you reduce stress and make better financial decisions in the long run. For example, if you find that you have little time to relax or socialize with friends, it may be worth making changes to your schedule so that you can have more time for yourself. Even small changes can make a big difference, and they can help you bounce back from an investing loss by re-energizing yourself and building better financial habits for the future.
It’s important to remember that all investments come with risks, and losses will inevitably happen from time to time. The key is to remain calm and focused and to make sure that your portfolio is aligned with your financial situation. If you’re currently dealing with an investing loss, it’s important not to panic or make rash decisions. Instead, take the time to review your current financial situation and consider where you can make improvements. Take into consideration these 6 Tips for Bouncing Back After an Investing Loss.