You’ve done everything you were supposed to do.
You learned as much as you could about investing and you made (what you thought) were smart moves.
But the investments didn’t work out. You lost money.
Of course, you’re not the only one singing this tale of woe. Over the last 10 years, stock market investors haven’t done well at all. Many suffered devastating losses.
The question is, what do you do now?
I’ll address that point, but before I do, I need to be very clear. This is not a simple question.
How you answer it (and the course of action you take as a result of your answer) will have a profound impact on you and your family’s financial future.
And in my experience, you need to go through a few steps prior to coming up with a course of action. Here’s the approach I suggest you take:
I’m serious. It’s critical to understand why you lost money. Was it because the market was terrible? Was it because you took risky bets? Did you try to time the market based on your “gut”? Was it a combination of all three? What exactly was the problem?
You need to be crystal clear on the cause of the problem in order to take the right corrective action. And you need to be completely honest. Don’t try to fool or kid yourself. If your actions made the problem worse, own up to it. It will cost you dearly if you don’t.
Accept life on life’s terms
If you are the problem, the solution is easy. Stop your crazy behavior and/or turn your investing decisions over to someone more qualified and/or less emotional.
Let’s say you’ve tried and tried to curb your emotional investing, but you can’t.
Accept that and move on. “Fire yourself, ” and do it today. Turn your investments over to your spouse or a professional.
But if the problem is the market, you have to accept that as well. You’re just not going to make money in a bad market. If you refuse to accept this reality, you’ll either give up on investing or become more aggressive at precisely the wrong time.
Either decision is a mistake, and possibly a devastating one at that.
If you refuse to invest your money because of the horrible experience you’ve had over the last 10 years, you’ll likely never have enough money to live the life you really want to live. You’ll pay the price and so will your family.
If on the other hand you become more aggressive to make up for lost time and money, you’ll be taking on huge risks and probably suffer the same fate as the person who doesn’t invest at all â€“ or worse. People who take on too much risk often end up with huge losses.
Given the reality that investing has risks, make sure your portfolio is allocated correctly. Make sure you’re not exposed to more risk than you are comfortable taking. People are often fine with taking risks when the market is rising. But they feel differently when the red ink starts flowing.
When you invest, make sure you can accept the worst case. If not, reduce your risk allocation.
Once you’ve correctly identified where the problem lies, and accepted the realities of the market and your own risk appetite, you may have to adjust to your new situation.
Everybody made rosy projections 10 years ago. But those projections didn’t work out for many of us.
If that describes you, I feel your pain. Really, I do.
Now we’re both 10 years older and less able to make up for this “lost decade.”
Time to tighten the belt.
- Are you tracking your expenses?
- Are you living within your budget?
- Have you updated your financial plan?
- Are they realistic?
- Can you work longer or generate income after you retire?
Don’t try to maintain a lifestyle today based on yesterday’s investment statements.
In summary, understand that bad investment returns are unavoidable. It’s what you do with them that counts.
You may need to change the way you invest. You may need to reduce your risk exposure. You may need to shift your lifestyle. You may need to do a combination of all three.
Don’t beat yourself up, give up or ignore this reality. There is plenty you can and should do now.
How have you come to terms with bad investment results?
2 Responses to “When Bad Investments Happen to Good People”
@Funny about Money – Maybe I have a bit of a sensitive spot when it comes to people masquerading as ‘professionals’ of one sort or another, but where money is involved, it shouldn’t be Halloween.
We have soft licensing requirements for financial ‘professionals’ from real estate agents to investment advisors to securities dealers to insurance agents. While each has a series of designations to help separate the best from the rest, even these aren’t good enough to differentiate professionals from jack*sses.
I’m sorry you’re dealing with the results of bad advice that helped to push you in the wrong direction, but it was nearly unavoidable. Very few involved in real estate during the bubble (and even today) could pull up a historical chart on housing starts or population growth and show you how that correlates to price. I’m guessing a salesperson would be uncomfortable discussing these important data with potential buyers as it would undermine the sale.
They probably wouldn’t want to explain that U.S. population growth is near zero and is expected to go negative in the future (without immigration reform, anyway). They probably wouldn’t want you to know that at nearly 2 times the high range housing start value, there were more houses than needed. Nah, they probably wouldn’t want to explain that fundamental aggregate demand forces didn’t support a supply level that was out of control.
I remember listening to a ‘professional’ real estate ‘investor’ on the radio during the boom that declared demand was driving up the market. Of course, that demand was speculation driven which is far different than investment or needs driven.
Even with new financial reforms, have we solved this fundamental problem? Nope. It’s still Halloween in the financial world with amateurs, speculators, peddlers, and others dressed in professionals’ clothing.
It’s impossible to come to terms with something you can’t get out of. And that’s the situation where people who are upside-down in a mortgage find themselves. A house purchase is also a type of investment, one that assumes that over time inflation will push your income up and the relative cost of your payments down.
My son and I copurchased a house for him to live in at a time when we thought the market was reaching its nadir. WRONG! Now what we planned would be a five- to ten-year hold has morphed into forever, because there’s no chance on God’s green earth the house will ever be worth what we’re paying for it.
If it were just me, I would walk away from it; at my age, credit is moot, since I no longer have to borrow for anything. Except that da** house. But my son can’t afford to have his credit ruined in his 30s. Nor can he afford any better place to live…assuming he could find a landlord who would rent to him at all.
We did, btw, have professional advice on the purchase of this property. That guy bought two rentals as investments at about the same time he was telling us prices couldn’t possibly go much lower. Within 18 months or two years, he was on the verge of bankruptcy. So, when it comes to investments, I’m not convinced a “professional” is any smarter than the rest of us.