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How to Rebound From a Bad Investment

overcoming loss with Lynn Kitchen

 

Page 2 of 3…

 

I’ll give you those tools. We’ll dive into overcoming the fear of loss in investing and life. Did you know that women tend to avoid investing because they fear loss? It’s time to change that narrative. I’ll provide practical steps you can take to rebound from bad investments and turn losses into gains.

 

In my 34-year career as an investment advisor executive and money manager, I have experienced many significant and memorable losses that taught me more about the stock market than all my wins. Why is that?

 

I’ve also experienced firsthand many egotistical Wall Streeters who brag about their big gains, their investments that doubled and tripled or 10Xd, but you NEVER hear them talking about their losses, Why is that?

 

And WHY are women more prone to fear and avoid investing? Do women fear loss more?

Why are women known, in general, as being “risk averse”- shying away from taking risks because we fear losing? Why is that?

 

Today I will give you real-world tools I have learned to turn lemon into lemonade and convert losses into lessons! Thanks for being here with me!

 

Wired for Loss Aversion

The good news is that it’s not your fault. All the scientific brain studies now show we humans are WIRED for loss aversion.

 

In fact, the human brain feels twice as bad about a loss as we feel about a gain. For example, if you lose $100, you feel twice as much pain as you would feel the joy of gaining $100. That’s twice as much! We feel the severity of any loss more acutely relative to a commensurate gain. It’s a shame, but we are wired to expect the negative.

 

Additionally, studies show that when you have taken a loss, you tend not to want to face the possibility of loss again. It’s easier to allow the fear of loss to cripple us, to blind us, to create an inertia. But unfortunately, that loss aversion can damage your ability to reach your long-range goals if you lose the courage to try again.

 

What if Coco Gauff had quit after her humiliating loss? What did she do instead?

  • She got better! And so can you!
  • You can learn how to overcome your fear.
  • You can educate yourself and get better.

 

We are socially conditioned for loss.

You may find this fascinating. It’s not just our brains…. studies show that humans are also socially conditioned for loss. It’s called Loss Psychology, in which we are conditioned to fear losing and not take risks to survive as a species. It shows up as pressure to not lose, to not lose money, or not lose a sports game, or even in dating, not lose a potential mate.

 

It’s interesting how much we must overcome, not just the loss itself but the fear of future loss.

lynn in feirce pose

What can we do?

Investing is a world where losses are part of the journey. There is much we can do.
Here are 5 BIG PICTURE SOLUTIONS to overcome your fear of loss and rebound from a bad investment.

 

#1: NEVER TOO LATE TO LEARN – Start Now / Get Educated

Most losses are results of limited perspective or lack of information – you can get better at knowing what happened, why, and how it could be avoided. Get some help, find financial classes, and talk to a trusted mentor. Uncovering reasons for your errors is the best way to learn what not to do again and how to do better. Commit yourself to learning – at any age, it’s never too late. JOIN My Financial Clinic For Women – you can start right away.

 

#2: ACCEPT THAT LOSS IS PART OF THE PROCESS

Like in life, losses and lessons are part of the journey. In investing, losses are inevitable. Change is always occurring in any world where prices are moving up and down. Both gains and losses are part of the overall dynamic. The best athlete does not expect to win all the time. Like Casey at the Bat, you must be in the game at the batter’s box, swinging at the ball and hitting. Over time, it’s the commitment to learning what works what keeps you in the game longest with the highest average of wins.

 

#3: STICK TO YOUR PLAN LONGTERM

I had an investment client – this is a true story…. we will call her GAIL. Gail began investing money she had inherited from her parents when they died. Gail had a low-risk tolerance and didn’t want to lose one penny of this inheritance. She only wanted the very best that money could buy. However, she was too scared to invest when the markets were down, so she only invested during strong markets. Every time, Gail invested in what turned out to be the top, the peak every time. In 1985, she bought right before the 1986 Big Market Crash. She suffered an immediate loss of over 30%. It took years to recover. She invested again in 1999 when the Internet craze was strong, right before the 2000 Dot Com Crash, and lost a fast 40% again because of the technology stocks; in 2007, Gail invested more during the big bull run that preceded the 2008 Financial Crash, losing a quick 20%. Gail was miserable every time but eventually started to joke that she was our best indicator of a bear market. As soon as she bought, the markets were assured to go down! It became a self-fulfilling prophecy.
Just before I retired in 2010, Gail passed away with an account that had tripled from her original investments, worth well over several million dollars, which she left as an inheritance to her heirs.

 

To recap, Gail was a terrible market timer with her only stock market purchases being made at the market peaks, just before extreme losses, but the key was she invested in quality and held them long-term.

 

#4: HAVE AN ASSET ALLOCATION AND DIVERSIFICATION STRATEGY

Be certain to have a proper asset allocation strategy with plenty of adequate diversification. This above all will help your overall portfolio withstand the inevitable changes in and out of favor and protect you from losses.

 

Asset allocation plays the primary role in rebounding from bad investments. By rebalancing your portfolio, you can ensure that your investments are spread across various asset classes, reducing the overall risk.

 

#5: BUY QUALITY and RE-EVALUATE YOUR RISK TOLERANCE OFTEN

Quality lasts. Non-quality and illiquid assets lose their value more quickly, and sometimes never recover. Only buy Quality.
Give yourself the best odds at recovering from any setback by insisting on buying/investing in ONLY high-quality assets with the highest quality financial rankings and above-average persistent, consistent growth of earnings, cash flow and income.

 

Re-evaluate your risk tolerance often. This is a self-reflective process that helps you become and stay aware of when your emotions may be triggered or when you will need to verify that your investments match your risk/reward preferences. This evaluation is best done with an investment professional who knows your life goals and strategy and can help you stay current with market changes.

 

However, do not abdicate to a third party your financial destiny. It is still your money, even if you have a trusted financial consultant or advisor.
If you do not know what you own or the quality of your investments, how do you know that your investments will sustain you over time? You must begin today to learn for yourself.
It’s your ultimate responsibility to yourself. And you are worth it!

 

Reserve your seat at my next upcoming free online Money Talks workshop

in November 2023

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