Nobody likes the feeling of logging onto their brokerage account and discovering that the balance is much lower than they remember it being. At some point, though, it’ll probably happen to every investor.
The reality is that it doesn’t take a full-blown stock market crash to send your portfolio’s value tumbling. It could happen if a specific market segment takes a hit, or if a specific company whose stock you hold has a bad earnings report or gets some negative press coverage.
If you’re feeling discouraged by recent declines to your portfolio, here are a few things to do.
1. Don’t panic
This is far easier said than done — after all, that’s your money on the line. But if your portfolio’s value declines, one of the most important things to do is avoid making emotional, fear-driven decisions about those investments. Remember, stock values fluctuate constantly, and just as they frequently go down, they can just as easily come back up. Before you work yourself into a frenzy — or sell in one — remind yourself that drops, even substantial ones, are normal.
2. Look at why your investments are down
Maybe the entire stock market lost value due to macroeconomic concerns. Or maybe you own a lot of tech stocks, and something happened that caused investors to be less upbeat about that whole sector’s prospects. Regardless, it’s a good idea to find out what is sapping the value from your portfolio, because it could clue you in to flaws in your investment strategy.
If the market as a whole is down, that’s one thing. But if your portfolio’s value has dropped markedly because one sector took a hit, it may be that you’re too heavily invested in that sector and need to diversify more. Seeing what’s gone wrong will help you figure out your next steps.
3. Avoid making changes until things cool off
Seeing your portfolio’s value drop can be disheartening, but you know what’s even worse? Actually losing money. And if you sell investments when they’re down, that’s exactly what will happen. A better bet? If broad headwinds are pummeling your stocks, don’t make any moves in your portfolio right away. Instead, sit tight and give the market, or the impacted segments of it, a chance to recover.
Now, if there’s a single stock in your portfolio that’s caused its value to drop significantly, and there’s a specific problem with that business — say, a corporate scandal, a regulatory change that negatively impacts the company, or a truly abysmal quarter — then you might consider unloading that investment if you think its value is only likely to decline further. But even then, it could pay to sit tight for a bit and see if that company’s outlook improves.
Look back to the investment thesis that led you to buy the company’s stock in the first place. If it still holds true, you should probably hold on. If it no longer applies, a reassessment is in order.
The point of investing is to make money, not lose it, so when your portfolio’s value drops, it can feel like a harsh blow. But remember, the winds on Wall Street shift frequently, so it’s important to not get bent out of shape every time it happens.
Along these lines, it’s actually a good idea not to check your portfolio too often, because if you pop in daily, you’re apt to really drive yourself crazy over what will turn out to be mostly minor short-term turbulence. Checking on your investments quarterly could help you strike a better balance — and save you a lot of unnecessary worry.
View more information: https://www.fool.com/investing/2021/03/25/3-things-to-do-when-your-portfolio-loses-value/