Stock market losses can cause serious financial concerns, especially for a young couple just starting to build a new life and plan for the future. Deciding what to do after suffering losses requires some education and a proper mindset. Put simply, every investor has to expect losses, so don't panic. Stay on top of the situation by taking active steps to determine the best course of action.
Wait and See
Not doing anything when incurring losses in stock market investments may seem counterproductive but may produce the best results in certain circumstances and in the long run. Simply put, every investor has to expect some losses. Think of investments as a form of gambling. You can make an educated guess on which stocks to invest in, but all the planning in the world does not guarantee success. Taking action after every single loss may take you from a solid stock that only experienced a minor negative fluctuation. Keep your eye on any stocks that experience a devaluation and remain updated on news regarding that particular stock. Any news indicating long-term devaluation may require divestment.
Invest In Stronger Brands
Investing in small companies provides the biggest risks and rewards. Investment in any high-risk stock experiencing devaluation may not require selling. Another course of action is to start investing in more stable stock. Stable stocks usually include the largest corporations with strong brand name recognition. Investment in these stocks may stave off any losses experienced with high-risk stock investments.
A strong investment plan usually invests in a number of different companies to help mitigate losses. For example, a couple that only invests in solar energy products may experience large losses if anything negative occurs to the solar energy industry. Investment in multiple industries to help keep large losses at bay. Look into diversification if you notice your investment portfolio only focuses on a few types of industries.
Besides investing in strong brand names, young investors can look to other forms of low-risk investment such as mutual funds, individual retirement accounts (also known as IRAs), and company 401(k)s. Mutual funds are a collection of stocks controlled by a management company. This gives young investors access to expert knowledge of the market. Furthermore, you can direct management on how risky your investments should be. IRAs are retirement savings accounts with non-taxable or deferred tax benefits. Finally, 401(k)s are retirement plans set up by your employer. Some employers match the money you put into your account, making this low-risk option attractive. Despite the low risks, which usually means low returns, young investors have the benefit of time. Money sitting in low-risk accounts can grow over decades.
Develop an Investment Plan
Losses in the stock market provide an opportunity to reevaluate your investment plan. First, determine your overall goal. Younger individuals investing for retirement have more financial leeway to reinvest in high-risk stocks since the money is not needed immediately. This means young investors may want to consider more volatile investments than retirement-aged investors that need to cash in on investments soon. On the other hand, investing for the short-term may require you to end high-risk investments and consider low-risk alternatives. The shorter time frame gives you less opportunity to recoup lost money.
Speak to a Financial Adviser
Stock investment requires significant self-education to put together the strongest investment portfolio. Unfortunately some couples may not have the time necessary to create a strong trading plan. This is where a financial adviser steps in. These individuals can put together a trading plan based upon your financial goals and help reorganize your investments if experiencing significant losses. Hiring a financial adviser may help reduce the amount of losses experienced and provide insight as to why those losses occurred in the first place.
David Montoya is an attorney who graduated from the UCLA School of Law. He also holds a Master of Arts in American Indian studies. Montoya's writings often cover legal topics such as contract law, estate law, family law and business.