You’ve done everything you were supposed to do.
You learned as much as you could about investing and you made (what you thought) were smart moves.
But the investments didn’t work out. You lost money.
Of course, you’re not the only one singing this tale of woe. Over the last 10 years, stock market investors haven’t done well at all. Many suffered devastating losses.
The question is, what do you do now?
I’ll address that point, but before I do, I need to be very clear. This is not a simple question.
How you answer it (and the course of action you take as a result of your answer) will have a profound impact on you and your family’s financial future.
And in my experience, you need to go through a few steps prior to coming up with a course of action. Here’s the approach I suggest you take:
I’m serious. It’s critical to understand why you lost money. Was it because the market was terrible? Was it because you took risky bets? Did you try to time the market based on your “gut”? Was it a combination of all three? What exactly was the problem?
You need to be crystal clear on the cause of the problem in order to take the right corrective action. And you need to be completely honest. Don’t try to fool or kid yourself. If your actions made the problem worse, own up to it. It will cost you dearly if you don’t.
Accept life on life’s terms
If you are the problem, the solution is easy. Stop your crazy behavior and/or turn your investing decisions over to someone more qualified and/or less emotional.
Let’s say you’ve tried and tried to curb your emotional investing, but you can’t.
Accept that and move on. “Fire yourself, ” and do it today. Turn your investments over to your spouse or a professional.
But if the problem is the market, you have to accept that as well. You’re just not going to make money in a bad market. If you refuse to accept this reality, you’ll either give up on investing or become more aggressive at precisely the wrong time.
Either decision is a mistake, and possibly a devastating one at that.
If you refuse to invest your money because of the horrible experience you’ve had over the last 10 years, you’ll likely never have enough money to live the life you really want to live. You’ll pay the price and so will your family.
If on the other hand you become more aggressive to make up for lost time and money, you’ll be taking on huge risks and probably suffer the same fate as the person who doesn’t invest at all â€“ or worse. People who take on too much risk often end up with huge losses.
Given the reality that investing has risks, make sure your portfolio is allocated correctly. Make sure you’re not exposed to more risk than you are comfortable taking. People are often fine with taking risks when the market is rising. But they feel differently when the red ink starts flowing.
When you invest, make sure you can accept the worst case. If not, reduce your risk allocation.
Once you’ve correctly identified where the problem lies, and accepted the realities of the market and your own risk appetite, you may have to adjust to your new situation.
Everybody made rosy projections 10 years ago. But those projections didn’t work out for many of us.
If that describes you, I feel your pain. Really, I do.
Now we’re both 10 years older and less able to make up for this “lost decade.”
Time to tighten the belt.
- Are you tracking your expenses?
- Are you living within your budget?
- Have you updated your financial plan?
- Are they realistic?
- Can you work longer or generate income after you retire?
Don’t try to maintain a lifestyle today based on yesterday’s investment statements.
In summary, understand that bad investment returns are unavoidable. It’s what you do with them that counts.
You may need to change the way you invest. You may need to reduce your risk exposure. You may need to shift your lifestyle. You may need to do a combination of all three.
Don’t beat yourself up, give up or ignore this reality. There is plenty you can and should do now.
How have you come to terms with bad investment results?