Is there a 'right time' to cut your losses?

whatstheplan

I suppose it depends on a number of variables e.g. your overall wealth, your risk appetite and long term investment strategy.  However, for those well versed in investing, is there a sort of recognized right time to cut your losses and withdraw from a particular investment?

Example, I've just put £20k into a S&S ISA and will likely invest most of the cash into the Vanguard LS100.  Let's assume I put all £20k into it.  I expect there to be ups and downs over the years.  However, at what point would an advisor advise me to withdraw from the fund if my capital continued to drop with no sign of an upturn. £16k? £14k? £12k?  Less?  Or would the advice be to ride it out?

Do any of you work to a specific low value calculation and if 'x' is reached you sell your shares in that fund/trust or whatever the investment vehicle is.

jimjames

I think the advice would be different for an individual share and a fund. For something like VLS100 I can't see any point at which you would sell out just because it has dropped. You might sell because you need the money but not from the investment falling in value.
A share would be different because you could consider the long term future of the company and if you think it is viable or not. Even that isn't an exact science, people were buying Debenham's shares even when it looked bleak.

vacheron

This is why I am not a big fan of depositing into long term investments in one large lump sum.

My preference is to divide the amount I want to pay over a time period of my choosing (x) and set up an automatic monthly transfer of (total / x) so that any fall in the value of the fund will allow me buy next months tranche at a lower price.

However, note this works better for funds with low (or no) dealing charges ratrher than if you were buying shares for example. 

I would then just keep buying through the dips, and as money invested in this manner should not be needed in the short term I would simply hold out for a (possibly very slow) recovery.

Lots of people have disagreed with my philosophy, and they are free to, but this is the method that helps me sleep at night, as I don't wake up the next day to an overnight £4K loss or something! 

I don't think many people are making huge amount of money by getting their trading platform to automatically sell their shares once a certain percentage drop is reached unless they have that money specifically earmarked for something in the immediate future.

Remember it is only a hypothetical "paper" loss until you sell, only then does it become real! 

eskbanker

whatstheplan said:

I suppose it depends on a number of variables e.g. your overall wealth, your risk appetite and long term investment strategy.  However, for those well versed in investing, is there a sort of recognized right time to cut your losses and withdraw from a particular investment?

Example, I've just put £20k into a S&S ISA and will likely invest most of the cash into the Vanguard LS100.  Let's assume I put all £20k into it.  I expect there to be ups and downs over the years.  However, at what point would an advisor advise me to withdraw from the fund if my capital continued to drop with no sign of an upturn. £16k? £14k? £12k?  Less?  Or would the advice be to ride it out?

Do any of you work to a specific low value calculation and if 'x' is reached you sell your shares in that fund/trust or whatever the investment vehicle is.

An adviser would advise you to invest in something compatible with your risk tolerance (and investment objectives, timescales, etc), so that you wouldn't be spooked by price reductions and feel that action is necessary at the worst time!  Buying high and selling low is rarely an advisable strategy....

bostonerimus

This is why I used a few broad indexes and rebalance on a threshold deviation from my set allocation. It eliminates a lot of worry and dithering. I't's been an excellent strategy through the crashes of the lats 20 years.

Thrugelmir

The Vanguard website has very clear information as to the extent volatility could impact the various LS funds. The greater the exposure to equities the wilder the ride will be. As your portfolio grows is size the larger the numbers will swing. That's the time people tend to revise their viewpoint. 

MaxiRobriguez

Index fund: Ride it out. 
Single stock: Depends on price change relative to the (changed) underlying fundamentals of the business.

Quite happy to ride out 70% losses or sell 10% losses depending. 

Eyeful

This is why with VLS you 
1. Have any emergency fund.
2. Invest at a share bond split you are comfortable with
3. Invest for at least 10 years or longer

If you are already worrying about "the right time to be cutting your losses", either you
(a) should not be investing
(b) have invested at a share/bond split which is beyond your risk tolerance
.

strawb_shortcake

I've surprised myself with my risk tolerance (granted I've only been in a week or two) but I'm quite happy with my choice of 100% equities for a number of reasons:

I'm invested in a LISA so get an 25% from the government.

For various reasons I've only invested around 3% of my total cash reserves. 

Im not investing what I can't afford to lose.

I'm locked in for at least 22 years, so I have time on my side. I don't have a date I need the money.

I don't actually need a lump sum at the end, it'll be nice to have but this is purely nice to have money. I have a good enough pension to live quite comfortably when the time comes.

I do not understand the selling at a loss, until you sell it's only a theoretical loss - as someone else stated this would differ in a single stock rather than a fund. I also think understanding why the market is reacting like it is helps add perspective.

In 20-25 years time,  if it's all gone tits up I'd rather look back and say I tried rather than wonder what if?

What I invest, is money I'd otherwise squander so by not investing I may have some more shoes and few different days/meals out. 

If my fund goes up I get a nice warm feeling, if it goes down then I can choose to invest more and wait it out for the reward so win win 

I may of course be completely naive and wrong...

Thrugelmir

annabanana82 said:

I've surprised myself with my risk tolerance (granted I've only been in a week or two) but I'm quite happy with my choice of 100% equities for a number of reasons:

Until an event happens people rarely know themselves. When your portfolio is worth £500k and it drops 27%.  Some £135k. Then you'll start to question whether you are holding the right "markets". Equities come in many shapes, forms and sizes. 

strawb_shortcake

Thrugelmir said:

annabanana82 said:

I've surprised myself with my risk tolerance (granted I've only been in a week or two) but I'm quite happy with my choice of 100% equities for a number of reasons:

Until an event happens people rarely know themselves. When your portfolio is worth £500k and it drops 27%.  Some £135k. Then you'll start to question whether you are holding the right "markets". Equities come in many shapes, forms and sizes. 

Granted, the other reasons in my post point to why I'm happy with this approach at this  time.

Should I ever get to the point where I'm talking much bigger numbers and my other points are less valid then I'm sure my attitude to risk would drop