How to Recover from Stock Market Loss — Zivolve
Zivolve-Intelligent Investing App offers these strategies and lessons on how to recover from your stock market losses. Losing money and even your spirit is an inherent part of the investment journey. According to Ameriprise Financial’s January 2020 survey “Financial Comebacks”, more than 25% of investors have experienced a financial loss in the stock market. If you lose money, especially if you’re a rookie investor, don’t beat yourself up about it. You’re going through what everyone goes through. To counter these unavoidable losses, investors should recenter themselves and learn how to minimize those losses. Hiding away from investing after a loss will certainly keep you in the red. Every loss is a learning opportunity that advances you forward in your investment journey.
Let’s understand what investors are up against. There are a variety of ways to lose money in the stock market. Learning each scenario and the choices that are involved to respond to setbacks will help you minimize losses. Below is a list of such investing/ stock market losses and their definitions:
This type of loss occurs when you buy a stock at a certain price, but then that stock’s price decreases and doesn’t revive. Eventually, you are forced to sell at a lower price and lose capital.
An opportunity loss is when you purchase a stock for a certain price and the stock’s price remains the same after a long period of time. You didn’t lose any money, but you could have invested the money you spent on this stagnant stock in at least a low-interest security, like a government bond or Certificate of Deposit
Missed Profit Loss
This type of stock market loss speaks for itself. When you own a stock and its price quickly rises up but then shoots down, you miss the opportunity to sell the shares you own at a higher price and make a profit.
A paper loss refers to when you lose money “on paper”, referring to a stock report stating your holdings. You bought a stock and its price decreased afterward. You decide to keep it because you technically have not lost money from your pocket…yet. In this situation, you must evaluate the company’s long-term prospects to decide whether to wait it out or sell.
When there are problems, there are also solutions. Here are some solution strategies that can help you lower the frequency of experiencing losses and how to come back from them.
Have a Written Investment Strategy
Taking the time to write down what you’re going to do with your stocks will be helpful as their prices rise or fall. It is important to have a concrete standard as to when you would sell a stock as it rises to make a safe profit or to sell a stock as it falls to avoid heavy losses. Such critical standards are called an exit strategy. With it, you won’t miss out on a chance for profit due to excited greed or become delusionally hopeful as a stock’s price consistently remains low.
Do Your Homework
Stock market loss is indeed inescapable, but paying attention to your investment portfolio at all times, even when it’s rising, is essential to decreasing the frequency of losses. It is true that the stock market, in general, rises in value over time. However, there are companies that contract and may even go bankrupt. To avoid this, stay on top of the research on the condition of the general stock market and the companies you’ve invested in. Don’t forget about Zivolve’s recommendations on books, news sources, and podcasts!
Mental Health and Reflection
Don’t let your losses define you. After a loss, take the time to express your frustration, but also commit to researching what happened in the stock market and why, what you could have done differently, and how to avoid this obstacle in the future. Remember, it is only a failure if you don’t learn from it. If you do, it becomes a lesson.
You must be vigilant and hold yourself accountable to the condition of your portfolio. Stock market losses are not avoidable, but you can definitely minimize them. Just as there are many ways to lose money in the stock market, there are a variety of ways to combat such losses and bounce back from them.
Originally published at https://blog.zivolve.com on August 12, 2020.