5 Things You Must Do To Save Your Failing Investments
Written by
John Csiszar
Edited by
Amber Barkley
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There’s no way to predict the day-to-day market fluctuations of an investment portfolio. Even investments that seem destined to be long-term losers can have extraordinary runs in value over extended periods of time. But there are still signs that a portfolio has an elevated chance of a dramatic selloff.
Some of these “red flags” mean that you should take action now while you can to protect your portfolio, while others are simply cautionary indications that you may suffer a temporary dip in your account value. Either way, there are certain actions that you must take with dwindling investments.
Here are five things you must do to save your failing investments.
Stop Loading Up Your Portfolio With Speculative Stocks
Speculative stocks can certainly be fun to trade, but if they’re the backbone of your long-term investment portfolio, it’s all but inevitable that your luck will run out at some point. Just ask the speculators who piled into meme stock GameStop, which famously spiked up in value by more than 1,600% in a single week in January 2021.
Every trader thinks he or she is smart enough to beat the market, but statistics show it’s nearly impossible. Even the majority of professional money managers fail to surpass the return of the S&P 500. Data from research firm Morningstar shows that as of 2023, the S&P 500 index outperformed the majority of money managers for the 14th year in a row.
And things are even worse for day traders, with some academic research papers suggesting that as many as 97% of them lose money. Unlike with investing, where the longer you persist the more likely you are to succeed, the longer you stay a speculative trader, the more likely you will blow up your account.
“An important principle to follow is to align your investments with your financial goals,” said Jake Falcon, the CEO of Falcon Wealth Advisors. “If you’re investing cash that you may need within five years in a volatile asset class you could be setting yourself up for financial stress.”
If your investments are failing, it’s likely because you heavily invested in speculative stocks, and it may be time to rebalance your portfolio.
Falcon added, “Keep the funds for short-term goals invested in short-term liquid investments that typically have lower volatility.”
Remain Patient as Rate Hikes Impact the Stock Market
When the Federal Reserve embarks on a campaign to raise interest rates, it’s purposefully slowing the economy. Generally, the stock market doesn’t react well to this. In 2022, for example, the market slumped by 18% as the Fed began raising interest rates. While markets can go higher as rates rise, they usually suffer when the Fed initially changes direction.
As this is often telegraphed in advance, you often have time to make any necessary adjustments to your portfolio. You can also remain patient. For example, after a challenging year in 2022, the S&P 500 finished 2023 with an exceptional return of 24%.
This leads us to the next point…
Don’t Stress Over Recessions Fears
When the Fed raises interest rates too high — or when other forces create an economic slowdown — a recession arrives. As this by definition is a contraction of the economy, it leads to lower corporate earnings, which in turn tend to drag down stock prices. When GDP starts slowing down, it may be a sign that a recession is on the way, which often leads to a market correction. Be aware, however, that the economy doesn’t always tip over into a recession when it’s predicted to, so you don’t want to make any drastic changes to your portfolio after just a few weak economic readings.
It’s also worth noting that things aren’t always as dire as they may seem due to the general sentiment. For example, a recent Harris poll conducted exclusively for the Guardian found that 56% of Americans thought that the country was in a recession, when it wasn’t. [x] While the economy may appear to be in rough shape, a recession hasn’t been declared, and it may be avoided. This means that remaining patient is crucial as stocks tend to bounce back.
Don’t Sell Due to Global Unrest
While usually only temporary in nature, global unrest — such as the breakout of a major war — typically generates a knee-jerk reaction downwards in the stock market. Although no investor can predict the outbreak of all major conflicts, keeping an eye on current events can help you protect your portfolio.
You’ll also want to remember that global unrest could be temporary and that ou shouldn’t sell off your investments just because of an unexpected geopolitical situation.
Get Professional Advice
“If you’re concerned about your long term investments losing value, then it may be time to get an opinion about your portfolio construction,” remarked Falcon. “Oftentimes we see investors not fully aware of how their money is allocated.”
Before you make an impromptu decision about an investment that isn’t doing well at the moment, you’ll want to seek out professional advice to ensure that you’re taking the right steps for your financial situation
Just because your investments aren’t performing as well as you would like them to, it doesn’t mean that things can’t turn around. You’ll want to consider rebalancing your portfolio or take the time to consult a financial advisor.
Martin Dasko contributed to the reporting for this article.
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