5 Tips to Recover from a Bad Investment (2024)

FAQs

5 Tips to Recover from a Bad Investment? ›

You might be tempted to jump back in with both feet, but consider taking on smaller positions than you're used to. For example, if under normal circ*mstances you never risk more than 5% of your trading portfolio on a single trade, after a big loss you might reduce that to 2% or 3% until you feel you're on solid ground.

You might be tempted to jump back in with both feet, but consider taking on smaller positions than you're used to. For example, if under normal circ*mstances you never risk more than 5% of your trading portfolio on a single trade, after a big loss you might reduce that to 2% or 3% until you feel you're on solid ground.

This sort of five percent rule is a yardstick to help investors with diversification and risk management. Using this strategy, no more than 1/20th of an investor's portfolio would be tied to any single security. This protects against material losses should that single company perform poorly or become insolvent.

If you believe that the stock won't ever pay off, but you can't prove it is worthless, sell it on the open market for a few pennies or a dollar to nail down your deduction. If you can't sell the security, you can abandon it. You do that by giving up all rights in the security and not receiving anything in return.

Forgiving yourself also means letting go of regret. Regretting past financial decisions only consumes your energy and prevents you from moving forward. Instead, focus on the present moment and the steps you can take to improve your financial situation.

What is the golden rule of investment? ›

Rule No.

1 is never lose money. Rule No. 2 is never forget Rule No. 1.” The Oracle of Omaha's advice stresses the importance of avoiding loss in your portfolio.

1. Earn More Than Your Spend. Regardless of how much money you make, if you never save any of it, you will never build up any substantial amount of wealth. It is not how much you make but how much you keep that matters.

Ninety-three percent of millionaires said they got their wealth because they worked hard, not because they had big salaries. Only 31% averaged $100,000 a year over the course of their career, and one-third never made six figures in any single working year of their career.

"When you need to let an investment go, there is one simple question to ask yourself," he says. "Forgive yourself for any prior decisions, forget about the past and ask yourself this one question: 'If I woke up today with no investments, would I invest my money the same way it is today?'

"If you want to stay invested, sell at a loss and use the proceeds to buy into a similar, but not substantially identical, fund," Wybar says. "This way you can recoup the loss and participate in upside returns when the market goes back up."

Recovered within:

If your investment does better than estimated and you receive 8.00% return, your original investment will be recovered in 17 years. However, if the investment does not perform as planned and you receive 6.00% return, your original investment will be recovered in 25 years.

Bad Investments Lack Leadership and Strategy

If you can't figure out who is leading a business or what exactly its strategy is, you probably shouldn't invest. Bad investments lack direction and leadership and are often floundering around without making much of a profit.