Hello Readers!
Fear of loss or loss averting behavior is common in investors, but it becomes a problem when it forces them to hold an investment in a mutual fund schemes, for years despite the losses that are staring back at them, only in the hope that this fund will bounce back one day. But here the question is, will it really bounce back someday?
Loss aversion makes the pain of losing money far greater than the joy of making gains, but while you follow this behavior you need to be careful. It might happen that in the wait for your loss-making investment to bounce back, you let go of opportunities that can help you generate gains. If it happens then obviously you are ruining your investments. Well, you are not alone who has been questioning their own way to manage their investments, but here important is, you need to mend your loss aversion behavior.
Before I explain to you the way to avoid or mend your loss aversion behavior first let us get aware of the dangers of this loss aversion behavior.
The Dangers Of Loss Aversion
Loss aversion behavior sometimes forces us to make decisions that completely change the map of our investment. Inclining much towards this behavior might end you selling funds that can prove profitable while holding on to those investments that prove loss-makers for your investment.
An investment is profitable in the long-run, only in condition when it has a good value and one can make a good profit from it by selling it over a loss-making investment, but for that also one needs to have a good quality investment portfolio. In the case of making good profits, you sell out all your good performing schemes, then you will leave out with uncertainty and losses.
Holding these loss-making poor-quality funds with a hope that they will bounce back again one day can only make you lose more as time moves forward. Thus here, when the fear strikes your investment, you have to be careful and precise with your decision, and remember do not take quick decisions in panic, it will harm your investments. Go through quality research and analysis, ask the experts, and find out which fund is good and has the capacity o bounce back, while which fund is bad and must be let go off.
How You Can Avoid Your Loss- Aversion Behavior?
You don’t need to put a lot of effort, in order to avoid your loss-aversion behavior, instead, you need to bring a kind of change in your mindset. While looking at your investments, don’t analyze them individually, instead, take all your investments as a whole and then analyze, in this way you can easily decide which of your investment is profitable and which is loss-making!
For example, if the small property you invested in is not generating any income, you may feel you have to work hard to get a rental while being unwilling to sell at a value below cost. However, if you put this loss-making investment as part of your entire portfolio which includes stocks, bonds, mutual funds, and so on, you may find that eliminating this long-term investment and reinvesting in a better alternative will in fact boost net gains in the portfolio going forward.
At last, I would recommend, keep analyzing all your investments as a whole and identify your good quality investments. Take your time and get rid of that investment that is getting your portfolio return down.
For any kind of query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee of future returns).