One of the most delicate phases of the investment process is when your positions in equities are in negative territory, that is, you have losses. Nobody wants this unfavorable scenario, but the evolution of the financial markets, sometimes unexpectedly, inevitably leads you to this so dangerous situation for your interests as a saver.
If you reach the levels of losses in your investment portfolio, you will have no choice but to act urgently, even assuming that you have made a mistake and close the stock market, even though it will cost you a lot. You must assume it as soon as possible to remedy this problem that you have in your relationship with the financial markets. Maintaining a static posture, on the other hand, may harm you more than benefit you, even worryingly.
In this very negative scenario, it is always better not to delve further into the losses generated up to that point. Your main objective will consist of protect your savings above all. Not surprisingly, a bad operation can put up with your personal finances, but if they are repeated, the scenario will be much more complex for you. Even reaching levels that are not very bearable. You will have to make a determination, and the sooner the better.
Depending on the selected deadlines
One of the factors that will mostly determine how far you can withstand losses in equities will be the stay period to which your investments are directed. As this is smaller, the difficulties will grow, as you can see through this article on financial markets.
The first of the scenarios will be raised in the positions a short term. You will not have many solutions to solve the serious problem you have reached. The resolution will necessarily start with a close quick in the positions in the stock market. You have no other defense mechanisms, beyond varying your approaches and addressing the medium or long term. With no other objective than to remedy the state of your investment portfolio.
By selling the shares in the financial markets you will be assuming the mistake of your performance, but you will have no choice. Unless you try to compensate for the losses through profits in your new operations from now on. It is the only way out to successfully complete your movements in the stock markets.
If your approaches, on the contrary, are aimed at the medium and long term, you will have greater options of getting out of these movements unscathed. Not in vain, you will have the mattress of many months ahead. Although with the clear disadvantage that you will miss more opportunities to make your savings profitable. But what it is about now is to solve the problem you have today.
Losses: covered by capital gains
In addition, you may be protected by the capital gains distributed by listed companies to their shareholders. In this way, even being in losses you can compensate them through this fixed and guaranteed payment every year. To the point that you can close positions with benefits in the balance of your securities account. This is a strategy that is used with some frequency by the most defensive investors, who do not want to risk their movements in the equity markets.
Another action that you can apply in the medium and long term is to sell the shares at a loss to obtain better tax treatment on your next income statement. In this sense, the most practical thing is that you consult it with your tax advisor, and be the one who decides if this movement that you can make is profitable to compensate for the losses developed up to that moment.
The amount of the amounts
This variable will not be of minor importance to limit the depreciation of your portfolio. At least you should value it seriously from this moment on. It is not the same to generate capital gains with very small amounts, than if you invest more than respectable amounts. In the first case you can even assume it, while in the second it will be more than a severe disgust. Hence the importance of diversifying investments to protect savings.
If the situation occurs that you invest a lot of money, there will be no choice but to be very aggressive when applying the solutions. From the beginning, and without letting the losses run. Since it can generate a more than delicate situation. In principle, the most effective strategy so that this situation does not reach greater will consist of execute an order called a stop loss.
This kind of order serves to reduce losses. It will always be better to lose 3% on your financial contributions, that these skyrocket up to 8%, even more in the most unfavorable scenarios for the equity markets. It is a type of movement that is very easy to apply and that it will not entail additional costs in stock market operations.
From this sometimes complicated scenario, you will have to measure with great precision where you are directing your purchases in the financial markets. Any error calculation, no matter how small, can cost you a lot of euros along the way. Do not opt for eminently speculative securities. It is true that you can get excellent capital gains, but the losses can be of equal magnitude. You must be more cautious in operations, especially in the largest ones.
Investment Profiles
You may not know it, but the profile you present as a small and medium investment will also be essential to have a more defined strategy to manage the losses generated in the equity markets. It will not be the same strategy that an aggressive investor should use, as that formalized by the most conservative of the financial markets.
From this scenario, an aggressive investor, and in some cases even speculative, will have more resources to manage your losses on the stock market. To the point that you can accept them more naturally. There are so many operations carried out during the year that for them it is only an accident that is part of their investment strategy.
Defensive investors, on the other hand, are more limited in their actions. Only time plays in your interests. Any depreciation of their buying positions is a serious setback for them. And that is greatly aggravated when they have to face liquidity situations. Faced with the need to pay for their children's school, settle a debt to third parties, or simply an unforeseen payment not in their household budget. Sometimes they will have no choice but to sell their shares in poor condition.
So that this situation does not develop, the best antidote will consist of invest only those savings that you will not need for a more or less prudent time. It will be the best strategy to avoid going through any of these situations where stocks are misused in the financial markets. Don't forget it if you don't want to make a serious mistake in the next few years.
Psychological effects on investment
One of the worst things equity markets can do for you is that they can change your mood. Not surprisingly, it is common among some investors (especially the less experienced) that when they are in a situation of losses in their investment portfolio their character changes remarkably. To the point of becoming more irascible, and with a certain level of anxiety. It is difficult for them to sleep, and they are only aware of what happens in the financial markets.
You should not go to these extremes under any circumstances. And if you see that this scenario can happen, the most reasonable thing is that you do not dedicate yourself to investment. You have other products so that you are calmer (time deposits, bank promissory notes, public debt etc.) in which you will be more comfortable. They will generate a fixed and guaranteed return, even if it is not totally satisfactory for your interests. Remember that you have no obligation to open positions in the stock markets.
Tips for living with losses
Losing money is not a pleasant feeling for anyone, not even for small and medium investors. But you will be able to manage it more effectively if some very useful lines of action matter in these cases. It will be convenient for you to know them, because at some point you may have to use them. They are the ones that we expose you below.
- Try by all means to protect your savings. Both developing correct investment strategies, as well as in the timely selection of the securities that make up your investment portfolio.
- Manage the problem when it arises, and not when it's too late and you no longer have a mechanism to defend yourself against losses in your securities. You will have no choice but to be very agile in all operations in the markets.
- Investing in the stock market carries risk in all movements. If you do not assume this premise, you will be incurring a serious irresponsibility that you can regret during the next stock market sessions.
- As an investment strategy, it will always be better take you by prudence. And it is preferable to take a small capital gains than the expectations of greater appreciations in the price of the shares.
- Invest your savings in most favorable scenarios for your interests, and never go against the tide of what the equity markets indicate, or even the activity of the international economy itself.