The Investor's Recovery Plan: What to Do If You've Lost Money in the Stock Market

The stock market is much older than many people realize: its roots come from Venice in the 1300s. Over the centuries, this early form of stock trading gradually developed into the investment options we’re familiar with today. And ever since its inception, trading stocks has carried a certain level of risk. Most of the time, the risks pay off — sometimes in a big way. But investment is never a guarantee, and you can lose money in stocks just as well as you can make money. Have you lost money in the stock market? Don’t panic. Now is the perfect time to plan your next move so you can recover and finish even stronger than you were before. Keep reading for our top tips to help you navigate stock market losses!

1. Recognize When It’s Really a Loss

First, it’s important to know what counts as a stock market loss. Otherwise you might find yourself worrying when there’s really nothing to worry about. If the price of a stock you’ve invested in goes down, you haven’t really “lost” anything yet. The loss hasn’t been realized yet, so the value of the stock may still go up, without affecting you at all. In fact, fluctuations are a natural part of the market. Long-term investing is one of the best ways to make money from stocks, but that means you’ll need to learn how to ignore the regular drops and rebounds in the market. If you’re worried about the falling value of your investments, take a look at the big picture. How has the company performed over the last five years? How about the last 10 years? When you look at things from this perspective, you might see that the “loss” you’re experiencing is a normal thing the company tends to bounce back from. If that’s the case, you don’t need to sell. But if things seem out of the ordinary, or there’s been a major change in the company that could be affecting prices, it’s a good time to sell.

2. Go Easy on Yourself

Practicing self-love may not be the most intuitive part of the stock market world. But you’ll actually make it through a stock market loss better if you can avoid being too hard on yourself for the mistake. At best, a stock market loss can become a learning opportunity. While you can’t reverse the loss, you can learn how to prevent a similar situation from happening again. But if you’re too invested in being hard on yourself, you won’t give yourself the chance to learn. Even worse, if you’re panicked over one mistake, you often make more worse decisions while you’re in that mindset. The more you can remain calm and rational, the better the outcome will be.

3. Avoid Tax Mistakes

You should always be careful with your taxes when investments are in the mix. The penalties for tax oversights can be serious. But when you ended up with a loss, it’s especially important to avoid tax mistakes that could make your loss even more costly. This means you’ll need to carefully review what capital gains and losses mean when tax time comes. Even stock sales that you made a loss on must be reported to the IRS. Otherwise, you might face an audit. Make sure to report any income you made from the sale of stocks. Even if you sold for a lower price than you paid for your stocks, the value might still count as income for the year. Fixing an oversight like this will cost even more, so be careful.

4. Cut Losses Short

When you start to lose money in the markets, it’s important to know ways to minimize those losses before they become massive. Watch prices carefully, and don’t sell at every downturn, but know when it is time to pull out. Taking a small loss can help you avoid taking a big loss. This means becoming comfortable with the fact that you make a mistake sometimes. Again, don’t beat yourself up over it, because if you do your losses will only grow. Over time, small losses combined with gains will even out into an overall profit. So make your peace with taking small losses when you need to. For example, be ready to sell if something seriously bad happens with a company you’ve invested in.

5. Invest Again

You’ll never recover your losses if you pull out of the market altogether and never invest again. However, now is a good time to rethink your strategy for investment. First, you should take a short break from trading. You’re going to get back on the metaphorical horse, but not right away. Go over the sequence of events that led to your loss, and pinpoint exactly what went wrong. Now, you can make a new plan to help you avoid the same mistakes in the future. Decide on what you’ll do differently next time, or what you’ll absolutely never do again. You might need to study the market more so you can understand how to change your tactics effectively.

6. Diversify Your Portfolio

To make losses easier to recover from, focus on holding a diverse stock portfolio. With a diverse portfolio, you give your gains ample opportunity to outweigh your losses. However, be careful not to diversify too much. Focus on a solid list of good companies, but don’t stretch your investments too thin. Stick to the number of companies you can effectively keep an eye on.

Seeking Help When You’ve Lost Money in the Stock Market

Even the best investors in the game have lost money in the stock market. A loss doesn’t reflect on your investment ability — at least, not as much as what you do after that loss does. One of the best ways to help spur your recovery forward is to seek help from a professional stock market attorney. This can help you ensure you know what went wrong, and how to recover your losses. Looking for experienced attorneys to help you through a big loss? Contact us today to take the next steps toward getting your money back.