Losing money on an investment is inevitable. That doesn’t make it easy.
In our journey as physician investors, it’s certain that we’ve encountered periods where investments don’t perform as expected, perhaps resulting in losses. I’ve had losses in the past, and I know I’ll have them in the future. How we handle these situations can significantly impact our long-term financial success and our ability to actualize the lives we want.
The investment may have gone south due to an unforeseen market blip or something else entirely. Many of you have experienced investment loss whether you are new to investing or have been successfully investing for years with multiple streams of income. It can be humbling.
Regardless of how it happens, what’s important is how we react and bounce back. There are ways to both change your mindset in the face of losses and to change your financial game so that you can hopefully avoid big losses in the future. That’s what we’ll focus on today.
It’s time to expand our investor toolkit! Let’s dig into the actionable financial steps you can take to invest smartly after losing money on an investment.
Get in the Right Mindset
Before we talk about actionable strategies, handling losses well really depends on having the right mindset. The basic process is to use knowledge to move from shame, intimidation, or frustration to a sense of community and confidence.
How can you do this? First, recognize that it’s okay to feel humbled by an unexpected financial loss on an investment—or even scared. Those tough feelings are our brains signaling to us that this is a learning opportunity. In any aspect of our lives, we learn our most valuable lessons when we go through humbling experiences. It’s a survival mechanism, a “I don’t want to feel that way again” emotion that (hopefully) leads to different results the next time.
Further, it cannot be stressed enough that losing money on investments happens to everybody. We are all out there navigating unexpected setbacks and trying to figure out how to invest intelligently. When you realize that you’re not alone—and I would even suggest joining communities of like-minded investors to realize you are not alone—it makes it far less scary to dive back into your next investment.
And why is it important to not let a setback get you down? You have financial goals and are trying to build a life of enduring wealth. If a blip in the road knocks you off track and you don’t get back on, your dream life might just stay a dream slightly out of reach. Instead, stay the course to realize your dreams.
Lastly, accept that we cannot precisely predict how the market will turn (although you can develop a strong sense of its cyclical nature). After things go down, they tend to go back up. That’s why you can’t let losses intimidate you or stop you from continuing to invest; after a loss, there tends to be an upward trend. And at the end of the day, the wins far outweigh the losses. That’s especially true when you have the right mindset and a solid toolkit of fascial strategies.
Here are some things to think about when we incur a loss while cultivating the right mindset:
- Acknowledge the Loss: Understand that losses are a natural part of investment without dwelling on it excessively or letting it cloud your judgment. This balance lets you see setbacks as a learning opportunity for growth on your investment journey.
- Focus on What You Can Control: What are the actionable steps you can take moving forward? Concentrate on the factors that are within your control such as revisiting your investment strategy, diversifying your portfolio, or seeking professional advice in order to stay the course.
- Limit What You Can’t Control: Some things are beyond your control, like market fluctuations. Try not to fixate on it other than to prepare for the possibility of a future fluctuation. Make a plan to offset your risks should they occur again.
- Learn and Adapt: Thoroughly analyze what went wrong. Evaluate the root causes and identify lessons to apply in the future. Be open to adapting your investment approach or refining your financial goals based on newfound insights as you start adjusting for the future.
- Think With a Long-Term Perspective: Reassure yourself that markets have ups and downs and that short-term losses do not reflect the long-term potential of investments. Focus on your long-term goals and stay committed to your strategy.
Your Next Financial Steps
There’s a difference between investment losses that were unexpected versus situations you didn’t really think through. One you learn from, the other might’ve been doomed from the start. Don’t get in the habit of the latter investment style, as you’ll continue to make the same mistakes.
Trust me, I’ve made those kinds of decisions on investments where I didn’t really know what I was doing, where I just blindly invested (and then lost) money. Then I scrambled to figure out what went wrong.I can tell you from experience that it’s not the proper way to do it.
Instead, be proactive to mitigate future investment loss while setting yourself up for future success. Here are a number of strategies to consider:
Capital Gains, Capital Losses, and Tax Considerations
Some losses can be canceled out as a tax incentive.
If you aren’t already aware, you may be able to deduct your investment losses for tax purposes. This can help offset your losses by writing them off. This can create a positive snowball effect where, with the money you save on your taxes, you can reinvest and magnify returns—keeping you moving forward toward your goals.
This can get complicated, so work with your CPA or tax strategist to familiarize yourself with IRS regulation, the concept of tax-loss harvesting, the wash sale rule, and how these and other factors may impact your tax planning strategies.
Engage in Networking
Here’s some advice: Try not to make all of the mistakes yourself. Learn from other people’s mistakes first.
In the face of investment loss, connect with fellow investors to turbocharge your financial education. Bring your situation to a financial community to study, discuss, and plan next steps. Many investment communities spend time sharing their financial setbacks with each other (in a judgment-free and shame-free environment) as part of the larger goal of financial education. I meet with a group of investors on a quarterly basis. There, we don’t judge. Instead, we discuss what we’ve learned and seek to lift each other up. When you are in a room with industry experts and seasoned investors, you gain valuable insights and perspectives.
We have many communities, events, conferences, and resources right here at Passive Income MD. Think about joining one or more of them, and we hope to see you soon!
Advanced Risk Management and Hedging Strategies
Explore advanced risk management techniques such as options strategies to hedge against downside risk in your portfolio. Or, use derivatives or structured products to mitigate specific risks.
And no matter the strategy, it’s always an important hedge against risk by enhancing the diversification of your portfolio. Doing so will protect you against market fluctuations.
Diversifying could also include allocating a portion of your portfolio to alternative investments such as private equity, venture capital, hedge funds, or real assets. Another possibility is implementing dynamic asset allocation strategies that adjust portfolio allocations based on market conditions, economic indicators, and investment opportunities.
If you are unsure of any of these steps, consider joining the waitlist of the Passive Real Estate Academy or contacting your financial advisor to learn more.
Capital Preservation and Liquidity Management
Prioritize capital preservation by reassessing the risk-return profile of your investments. Once done, reallocate assets to safer and more liquid options during periods of uncertainty.
Not only does this protect against future loss, it also gives you the ability to take advantage of market downturns. Downturns are usually the best time to invest in undervalued assets that can skyrocket a portfolio’s worth.
Debt Management and Leverage Adjustment
Evaluate your debt levels and leverage ratios. Afterward, consider reducing leverage or restructuring debt to improve financial stability and mitigate risk. This is especially useful in times of market volatility.
Beyond that, explore your refinancing, debt consolidation, or debt restructuring options to lower borrowing costs and manage cash flow effectively.
Stay on Your Investment Course
If you want to achieve your financial goals, the truth of the matter is that you should keep investing despite losses. There is a way to do it while limiting risk and achieving serious financial gain. When a loss has you unsure if you want to keep investing, come back to this blog.
And if you’re looking for a community that supports and encourages the steps we talked about today, consider joining us at our Leverage & Growth Accelerator and PIMD Momentum MD Mastermind. Here, you’ll find resources and mentorship to help you stay the course on your investment journey. It’s a space where your ambitions are understood and your efforts are applauded.
My hope is that you continue to carefully invest and benefit from Passive Income MD. It’s knowledge that can change lives. We here at Passive Income MD are honored to continue to support your big ideas and financial goals on your way to building your dream life. Until next time, I look forward to seeing the progress you make. Keep up the hard work!
Peter Kim, MD is the founder of Passive Income MD, the creator of Passive Real Estate Academy, and offers weekly education through his Monday podcast, the Passive Income MD Podcast. Join our community at the Passive Income Doc Facebook Group.
