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How to handle large losses in your investment portfolio

by , 11 September 2015

If you've got a portfolio heavy with losses, there are a number of reasons why this has happened.

So what are the reasons behind big losses in your portfolio? And how can you sort your portfolio out so this doesn't happen in the future?

Read on to find out more…


The reasons for large losses in your investment portfolio


There are a number of reasons why you may be carrying about large losses in your investment portfolio…

  • You may not stick to asset allocation. The result is too much of your money being in stocks.
  • You may not use position sizing. This means you have too much money in each stock.
  • Or you don’t use an exit strategy or decided to ignore your exit strategy.

If your portfolio is heavy with losses, you need to take steps to remedy the situation. What you do depends on your circumstances, Justin Brill in The Crux explains.

If you have too much money in stocks or your positions are too large, you need to think about selling off some of your stocks or trimming down positions.

If you’ve ignored your trailing stop losses or you didn’t set any, you need to set them now. If you don’t want to lose any more money on a particular position, this means selling your stocks.


You must have an exit strategy when you invest in shares


Take the time to define your exit strategy for investing in stocks.

You need to decide how much you’re comfortable losing in each position you take and stick to it. Clinging on to shares hoping that their price will recover is not a strategy, a share price can always fall further.

Selling shares at a loss isn’t something any investor wants to do, but it’s something every investor has to deal with at some stage. Selling at a loss means you can move on and put your money to work elsewhere.

You have to have a strategy in place that stops a small loss becoming a huge one. You have no control over what the market does. But it’s vital that you have a strategy in place if a stock in your portfolio dives in price.

Using trailing stop losses is a simple exit strategy to follow.

Don’t let the laggards in your portfolio hold you back. Clear out these junk shares from your portfolio and focus on the quality stocks you have.

So there you have it. How to handle large losses in your investment portfolio.

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How to handle large losses in your investment portfolio
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