Where there are wins, there are always losses. Making losses on your stocks is common practice, especially for beginner investors. Whether you are aiming to grow your financial wealth, trying to increase your SMSF funds for retirement or simply trading stocks for the fun of it, here’s how to recover from short-term losses and plan for long term returns.
Capital losses
Capital losses occur when you sell something at a lower value or price than what it is worth or what you paid for it, which then results in an actual dollar loss. The silver lining on a capital loss, however, is that you can use it to offset tax on your profits when it comes to tax time.
Waiting it out
Playing the stock game means investing long-term, not short-term. If your stocks start to plummet in value and selling them will create too much of a loss, it may be necessary to simply wait it out until your stocks start to go up again in value.
Averaging down
If your stocks go down but you’re confident they will go up again, you can also “average down” your stocks. This means you buy more of the same stocks at a decreased amount. This will reduce the average amount you spent on all stocks, meaning when they start to rise again in value, you can reach your profit level sooner. However, this can be highly risky and is a strategy that should only be open to experienced and knowledgeable investors with spare cash up their sleeves.
Savings
Money saved is better than money earned! A smart investor will always have a surplus of cash or savings to save them from significant stock investment losses. Even large corporations who invest will have backup funds in case the worst scenario comes to light. Consider how these savings can be used to help you back on track and even balance out your losses (without simply investing more in stocks).
Investing elsewhere
If you have a further surplus of funds to support your investment needs, you can also consider using these funds to invest in commodities and other fields outside of stocks. This could include property (residential, commercial, industrial), precious metals, currency or even bonds and trusts.
This may involve further education and training on your part (e.g., if you want to invest in currency, you would probably need to undertake an introductory forex training course), but it can be worth it if means you have the potential to make some wins. If the market is good and you play your cards right, you may be able to make profit on these investments, which will help offset your losses on the stock market.
Fraud
If you feel you have suffered stock losses due to fraudulent activity by a third party, your best option may be to seek legal action in order to recover them. You will need to contact a legal expert or firm and they will be able to conduct a thorough audit and analysis of your investment portfolio, your activities and movements and of the amount of losses you have suffered. They will be able to determine whether your losses were due to bad or inaccurate advice, fraudulent activity or simply bad market conditions.
