If you discover a small loss in your portfolio, what should you do?
The first thing is not to get discouraged. Not every loss is necessarily a bad thing.
A chess idea that can make you a better investor
Once, when I played a game of chess with my children’s chess coach, Boris, I gave up a pawn relatively early in the game. At the time, this didn’t seem to matter because it wasn’t doing anything anyway. But by the end of the game, I realized I had given up the pawn way too early and I should have planned my game more carefully, considering its potential future value.
What to do when an investment looks bad
From my loss in chess, I learned an interesting lesson about investing. If you are holding onto a bad investment that is going nowhere, you should get rid of it because if it isn’t actively helping you, it is hurting you. However, some pieces just take a little longer to achieve their potential.
For example, you may have a global bond fund that remains flat for a year. At the end of that year, you feel you need to do something with your portfolio and you sell it. But that could be a poor decision. A fund might have a bad year due to outside influences. The next year, though, the situation might change. If the reasoning behind your original purchase remains intact, even if the fund underperformed in the short term, consider holding on.
A small loss in your portfolio does not always have to be a reason to sell an investment quickly or hastily. Hold onto your quality pieces and investments and take a measured decision to see if they could be winners for you in the future.
For more about the fear of loss, known as “loss aversion,” read Profile-Financial.com/loss-aversion
Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published July 6, 2015. Updated August 2022