The Illusion Of Paper Losses
You never want to sell your investments with a loss because that makes the losses real. Today they are just paper losses.
That investment advice, for some reason, has stood the test of time. I guess the fact that they are losses on paper doesn’t make them real!
When you see or hear the words never and always, ask yourself the following question – Is there a time that advice wouldn’t be true? Always and never tend to be included with absolute truths. There is only one absolute truth when it comes to money – there are no absolute truths!
If you are looking over your statements and you see the losses, you need to ask yourself the following two questions –
First, has my risk level or tolerance for risk changed? If so, it might not make sense to stay invested in fund losses or no losses that don’t match that risk level.
It makes sense to have a congruency between the investments that you are using and your risk level, especially if it has changed. For example, if your risk level has gone down, it may make sense to sell the higher-risk fund and exchange it for something less risky.
Second, is the recovery of the fund worth the risk of staying invested in that fund?
Especially in a bear market, investments can lose money. Nothing is guaranteed always to go up. However, were the losses more substantial than they should have been? Is there any reason to think that investment might not perform as well as it should in a recovery? This is a harder question to answer. However, you can run this simple test. If the S&P 500 lost -30% and your fund lost -40%, that is a red flag, especially if the fund was not out-performing the S&P on the way up.
Your financial advisor should be on top of things and be able to help you out. If not, you may want to consider another change beyond whether you keep the funds or not!
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