Spooked by ongoing sharp decline in value of investments - should I cut my losses?

masonic

I found early losses were formative, and it helped that there was little at stake. We don't know if the OP has invested using only their current year ISA allowance or transferred in many years worth, but I suspect it's the former.

I would disagree that it's psychologically easier to watch a large portfolio composed of returns over many years lose hundreds of thousands than a £20k portfolio you have just started lose a few thousand.

The point of mentioning the 1 year performance is not to say things could have been better from a different start point; it's that nobody knew what was going to follow the tariff crash, just like we don't know what's going to follow this minor dip.

Section62

https://forums.moneysavingexpert.com/discussion/comment/81932984#Comment_81932984

I do not agree. If an investor has accrued profit from the good times, the "blip" means very little. But, if the investor starts off on Day 1 by experiencing loss and that continues for the month, he can be forgiven for thinking that he picked a bad time to start investing and duly packs his bags and goes away. Pointing out that things would be very different, if he'd started a year earlier, don't really mean anything at that stage. There is a world of phsycological difference between loosing your own money in the here and now and loosing theoretically accrued profit.

I think that (the whole quote) is an unfortuante way of looking at things.

Someone with the whole of their investment journey in front of them would be better served by glancing backwards - and whilst not falling into the trap of thinking past performance is a guide to the future - using that information to understand that a (say) 5% loss in a period of a month is just part of the ups and downs you can expect from investing.

Being 'forgiven for thinking that he picked a bad time to start investing' is an odd choice of phrase. If a 5% loss was not anticipated then the error was not in picking a "bad time", but rather in making an unfortunate choice to invest at all.

Someone at 'Day 1' of their investment journey, if anything, might consider a 5% discount on what they can afford to buy as something of a bonus. And if this possible opportunity is instead viewed as some form of disaster then there is a steep learning curve ahead.

chiang_mai

https://forums.moneysavingexpert.com/discussion/comment/81933000#Comment_81933000

I'm not surprised you wouldn't agree, neither would I! My model didn't have your disproportionate losses, mine had similar losses, before and after.

masonic

https://forums.moneysavingexpert.com/discussion/comment/81933201#Comment_81933201

In the case of a 20% crash, the loss from a £20k equity portfolio of someone early in their journey would be £4k, whereas someone in the final decade of their work life could have accumulated a £1m portfolio and face a loss of £200k. It might take the youngster several months to save that lost £4k from their income, whereas it would take a lot longer for the mature investor. Hopefully the mature investor would have built some resilience over the years, but, nevertheless, the magnitude of the loss compared with the potential to replenish it can make an early loss easier to stomach than a later one.

Given the choice, I'd prefer to have all the bad years up front when I had less invested and was adding a high percentage of the portfolio in new contributions per year, but of course accept that markets will correct and crash with some regularity throughout.

chiang_mai

https://forums.moneysavingexpert.com/discussion/comment/81933228#Comment_81933228

My point was far more simple than the argument you're putting forth…..If I made 15% last year, loosing 5% of that profit doesn't feel anywhere nearly as bad as not making anything last year and losing 5% right off the top….that's all. People are human beings with human emotions. They begin investing, expecting to make profit, in the knowledge that at some point they may lose some. They don't begin investing, expecting to lose money and then at some point, earn back some profit!

vldmrs

I think what you’re feeling is completely normal when you first start – the timing’s just been a bit unlucky.

A 3% drop feels big when it happens straight away, but in investing terms it’s really quite small. Markets can (and do) swing much more than that, even in “normal” times.

The key thing is whether you’re actually comfortable with that level of ups and downs. If it’s already causing stress, it might just mean you’ve taken on more risk than suits you personally.

A lot of people go through this phase early on – checking it too often and worrying about every dip. Over time you either get used to it… or decide it’s not for you, which is fine too.

But selling after a small drop is pretty much the classic way people lock in losses, so worth thinking carefully before doing anything.

masonic

https://forums.moneysavingexpert.com/discussion/comment/81933399#Comment_81933399

I happen to have lived that first scenario, as I started investing in 2006, made about 15% to the top of the market in 2007, then lost 5% by early 2008… then lost another 30% by the end of 2008.

I remember wishing the crash had come earlier rather than later, as it would have meant more of my monthly contributions would have bought the three funds I was investing in at the time at lower prices. If it had come later then the personal impact on me would have been more severe. Obviously the ideal situation would be for the crash to have happened before I started, but the second best option for me would have been straight away, as it would have meant that less of my capital would have been subject to the full force of it.

Perhaps I think differently to normal people.

chiang_mai

https://forums.moneysavingexpert.com/discussion/comment/81933556#Comment_81933556

It's a mistake to think there are such things as normal people. :)

Nebulous2

https://forums.moneysavingexpert.com/discussion/comment/81933556#Comment_81933556

There is a tension between logic and emotion.

Very logical people can follow the rules / guidance / advice / previous history and avoid the noise.

More emotional people see their money disappearing down a drain, and think the world is going to end.

Neither of them are 'right' or 'wrong' and their particular mindset can advantage either of them if the circumstances suit the way they operate.

Of course many of us are somewhere in the middle and can swing between both. Emotion can play a part even for people who don't recognise it.

Isn't there some evidence that the markets do better when the weather is better?

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81933940#Comment_81933940

More emotional people see their money disappearing down a drain, and think the world is going to end.

Not usually helped by a lot of doom laded sensationalism in the media.