“Since the last two years that I invested in Stocks on Rise, my stock has been down by 50%, and it just keeps going down. What should I do?”
If you’re a stock investor, you probably have asked this question about your stock portfolio or know someone who has. This is a common and expected outcome with stock investing as stocks are generally considered to be high-risk investments because of how unstable their prices are; they can rise and fall significantly in a short period.
Although high-risk investments can make you a lot of money in a short time, they can also lose you a lot of money in a short time.
A share or stock is a piece of ownership in a company. When you own a share, you own a piece of a company which allows you to share in the company’s profits (in the form of dividends) and capital gains (when you sell your share at a higher price than you bought it).
What should you do with high-risk investments like stock when it’s down 50% or any other percentage at all?
Understand how the investment works
Stock prices do not only go up; they also go down. A stock’s price can rise by 1000% in one year and fall by 50% in another year. For example, Tesla’s share price rose almost 1300% between the 3rd of January 2020 and the 5th of November 2021. However, between the 5th of November 2021 and the 18th of November 2022, the share price has fallen by over 55%.
While it is very hard to see your stock portfolio down significantly, it is not unusual for stocks to go up and down. By understanding this risk, you can prepare yourself to invest for the long term.
Invest for the long term
The stock market rewards long-term investors richly. Investing for the long term (5-10 years or more) allows you to wait during market downturns like these. The average return of the US stock market over the long term is just above 10%, which means you can double your money every 10 years.
In the long term, stocks go through peaks and troughs. Depending on your investment goals, you can sell during the peaks and make even higher returns. But if you are at least patient to invest for the long term, you can make several multiples on your investment.
Have an emergency fund
An emergency fund is 3 to 6 months of your monthly expenses saved up in a place where you can quickly get your money out in cash if you need it in an emergency.
To invest for the long term, you need to invest money that you will not need in an emergency. To help you prepare for this, you should also have savings and an emergency fund separate from your stock investment.
Try not to micromanage your investment
Try not to check your investment every day. It’s not healthy for your mind or for your investment portfolio. If your stocks are up, you might feel pressure to sell earlier than you would have if you were not looking at it. If your stocks are down, you might feel pressure to sell earlier and miss out on the recovery.
Look away from your investment when it’s down significantly. If possible, forget about it completely. Maybe check it every few months to see how it’s doing.
Don’t sell and look for somewhere else to buy
When your stocks are down significantly, you need a larger increase to recover your capital. For example, if your stock portfolio is down 50%, you need the stock to rise 100% to recover your capital. See the table and chart below.
Instead of waiting around, you can buy more at the fallen price to reduce your loss so you don’t need the stock to rise too much to recover your losses. This technique is known as Dollar Cost Averaging (DCA).
Cut your losses
Alternatively, you can sell your stocks and cut your losses. Some stocks never recover; they only keep falling till they get delisted and become worthless. If you don’t believe the stock will ever recover, it might be better to get 50% of your capital than none of it.
Risevest is constantly making changes to our stock portfolio to ensure our investors make the best returns. Check out our portfolio here.