Investing - losing money and its effect

Monday, August 18, 2008

No one likes to lose money. Even a coin-operated machine that keeps your money and does not deliver the product is maddening. But, losses in your investments are much more serious. These can have serious consequences for your family and well-being. While your investment efforts are all about making money, there will be times that you will lose money either from action or inaction. Investing is a fickle science at best. And since no one is perfect, losses will be forthcoming.

The first step in planning on losing money is to make sure you are in a position in which a loss will not completely devastate your financial picture. Make sure that the basics are cared for: budget, income sources, savings strategies and debt elimination (personal loans for example). Once these are taken care of, then your investment activities will take on a less important role in your overall financial health. And any losses will not have as great of an impact.

The best strategy for losses is to mitigate the damage. That means to make your investments diverse and wide-ranging. Do not put all of your investments into one vehicle. Spread your risks among conservative investments in order to keep from becoming too heavily invested in one fund or type of account. When you do encounter a loss, remind yourself that you are in this for the long term and that short term losses will soon be a distant memory.

Listen to sound financial investment advice. Seek out those who are doing well and follow their example. Do not run with those who move from investment to investment to try to “beat the system” and squeeze every penny they can from their transactions.

View any losses as temporary setbacks and not long term patterns. Focus on that part of your investment strategy that is going well at the time of the loss. Look at the good that is being perpetuated by staying within your long term growth strategy. Refuse to let the negative dominate your thinking. Be positive about your investment choices and future gains that will be forthcoming.

With these tips you can weather any losses that happen your way. You can still be a positive player with some small setbacks from which you learn more about what works and what does not.