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When winners become losers – what to think about as an investor

We look at some important questions to ask yourself if one of your investments is sitting at a loss.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

You’ve done the research and found an investment you believe in for the long term. You expected it to be a winner, but it doesn’t go to plan. The investment goes down and now you’re potentially sitting on a loss.

You shouldn’t be disheartened if it drops in value in the short term. But if you’ve been holding an investment for a while and you’re sitting on a loss, it can be tough to decide what to do next.

You always have options. But no one has a crystal ball, so it can be hard to judge which option will lead to the best outcome. So how do you decide?

Remember, investing should be for the long term. By long term we don’t mean a month, a year or even two, we mean longer. We think investments should be held for at least three to five years and past performance is not a guide to the future.

This article isn’t personal advice. All investments and any income they produce can fall as well as rise in value, so you could get back less than you invest. If you’re not sure whether a course of action is right for you and you would like recommendations tailored to your specific circumstances, please seek advice.

Frame the situation

It isn’t easy seeing your hard-earned money disappear, but try to not let your emotions get in the way.

A balanced portfolio will always have winners and losers. But if you’ve lost faith in an investment that is now sitting at a potential loss, the questions you ask yourself can help you decide what to do next.

You’ll probably be asking yourself:

  • Should I hold on and hope it goes back up?
  • Should I buy more while the price is lower?
  • Should I sell and accept the loss?
  • What if I sell and then it goes up?
  • What if I don’t sell and it goes down further?

But the most important question you should be asking yourself is ‘If I made a new investment today, where would I invest it for the long term?’.

By reframing the question, you can remove some of the emotion attached to the loss. This helps you make a clearer, more calculated decision.

Perhaps you’d put your money back into the same investment because you want to buy in at a lower price. If that’s the case and you’re optimistic that it will rise again, then you might want to hold onto it. You could even think about investing more if you’re confident in the long-term prospects, and can afford to. Remember prices could fall further too.

If you were thinking about investing it somewhere else, then you might be better off selling and doing just that.

Whatever answer you come up with, it’s important to hold a diversified portfolio. That way a big fall will be less painful as you should have other investments providing some shelter across your portfolio overall.

What to do if you’re sat on a loss and nearing retirement

If you’re approaching retirement and need to decide what to do about a loss, you should think about the investment in relation to your retirement plans. Your objectives might have changed since you first bought it.

Even if your investment has fallen in value, value and yield are two different things. If you need an income from your investments, yield should form a big part of your decision. If the investment has had a healthy and growing yield, you might forgive the loss and keep it for the income it’s giving you. However yields should not be seen as a guide to future income. You could still get back less than you invest.

It’s important to think about your level of risk when you’re coming close to retirement. It’s typical to reduce your risk as you get closer to retiring. Investing in a collection of funds that invest more conservatively could be a good way to reduce your risk. If this is something you are thinking about, it could make the decision whether to sell your losing investment easier.

Does the investment fit into your overall strategy?

Whether you’re a first-time investor or a seasoned pro, all investments should be made as part of a long-term strategy.

The key to a good investment strategy is diversification. One way to add diversification to a portfolio is to think about taking a core-satellite approach. A core-satellite approach involves holding a main core of investments, surrounded by smaller satellites.

The idea is to help you achieve greater returns with a relatively lower level of risk, thanks to diversification. Holding a well thought out portfolio that includes lots of different types of investments reduces the impact of any one area performing poorly.

By stepping back and focusing on the bigger picture, it can make it easier to make clearer decisions about what to do when you’re sitting on a loss.

We can help you make tough decisions

Deciding what to do with your investments is just one of the tough financial decisions you’ll probably have to make during your lifetime. They’ll be lots of other hard choices too.

A professional can help with decisions about how to rebalance your portfolios and grow your wealth. With careful financial planning, Financial advice can give you personalised recommendations to help you untangle all the ‘what-ifs’.

The key is to have a plan, but you can’t plan until you have an objective in mind. Our advisers will listen to your objectives and help you to put everything in place to reach those goals.

Start by booking a call with our Advisory helpdesk. They’ll find out what you want to achieve and let you know if and how financial advice could help. They’ll also explain how we charge for advice. If you decide financial advice is right for you, they’ll put you in touch with an adviser.

book a call

What did you think of this article?

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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