This is a question we frequently hear from our clients. When investments aren’t performing as expected, it’s natural to wonder whether it’s time to cut your losses and reinvest elsewhere.
Key Questions People Often Ask:
- Is there a better investment opportunity with a higher potential return?
- Can I recover my losses, and if so, when?
- What does the future hold for this investment?
While these questions are valid, predicting the future of any investment is challenging, and searching for definitive answers can sometimes be counterproductive. Before diving into analyses and financial models, evaluate your overall plan first. Reflect on what you are truly investing for.
Consider Your Investment Objectives
(A) Core Financial Goals:
These goals are closely aligned with your desired quality of life and generally have less room for compromise. For core goals, focus on the reliability of returns rather than optimising for maximum returns. Here’s a checklist of considerations:
- Idiosyncratic Risk: Is the underperformance specific to a country, sector, or company? A highly concentrated investment increases idiosyncratic risk and reduces overall reliability of returns in the long run.
- Volatility and Risk Appetite: Even for diversified investments, consider if the level of volatility is suitable for your risk appetite. If the magnitude of drops makes you anxious, it might be time to dial down the risk.
- Costs: What are the underlying costs of the investment, and are there similar alternatives with lower costs?
(B) Aspirational Goals:
Aspirational goals go beyond immediate, practical achievements and tend to be more idealistic. These goals are often “nice to have” and would not negatively impact your life if not achieved. They also typically have a long-term horizon, even inter-generational. Here are some considerations:
- Personal Interest: If you have a strong interest in the investment’s underlying themes and want to see if your personal views will pan out in the long run, maintaining the investment could be satisfying.
- Diversification: Consider redeploying into new asset classes. This can increase the diversification of your overall wealth and enable you to capture returns available within those asset classes. Common asset classes include real estate, publicly listed stocks, bonds, and funds. Less commonly used are private equity and credit instruments that have a low correlation to publicly listed instruments.
Conclusion
It is always uncomfortable to see an investment drop or perform poorly. While it is tempting to chase the next “big thing” to recover losses, corrective steps are more effective when viewed in the context of your overall plan and objectives.
Ultimately, if the investment is misaligned with your intended objectives, it might be best to bite the bullet and redeploy accordingly to set the stage right.
This is an original article written by Ray Zheng, Client Adviser at Providend, the first fee-only wealth advisory firm in Southeast Asia and a leading wealth advisory firm in Asia.
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At Providend, we believe it is more important to look at the reliability and sufficiency of your investment returns to meet your non-negotiable life goals and events, instead of wanting to maximise your returns and having to deal with the uncertainties and risks that would entail.
This means that we do not use investments that try to outguess the markets, nor do we put our clients through the stress of unnecessary risks for the sake of excessive returns that they do not need to achieve their life goals. Learn more by reading our investment eBook titled “A More Reliable Way to Get Enough Investment Returns: Even During Times of Market Uncertainty” here.
Through deep conversations with our advisers, you will gain clarity on what matters most in life and what needs to be done to live a good life, both financially and non-financially. Learn more about our investment philosophy here.
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