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Don’t PANIC: 7 Ways To Recover If Your Portfolio Dropped

For many investors, 2022 was a terrible year for their portfolio. The S&P500 dropped over 20% and it was not uncommon for some portfolios to lose more than 50%. Imagine investing CHF100,000 and you are left with CHF50,000! Instead of panicking or throwing in the towel, here are some things to consider if you are faced with this situation.

The maximum drawdown or drop from the peak of 2022 was -23.91%. But it recovered spectacularly after that.

portfolio wtih SP500

Take a deep breath and don’t panic

It can be scary and stressful to see your investments drop by more than 50%, but it’s very important to keep a cool head and not panic. Market declines are a normal part of investing, and it’s important to remember that your portfolio is likely a long-term investment that is meant to withstand ups and downs in the market.

Any drop in the market is a huge opportunity to invest more. This would give your portfolio rocket fuel and a huge boost when the market recovers. Of course invest with money that are available and do not borrow money to do this.

Review your investment portfolio strategy

If your investments have dropped significantly, it’s a good idea to review your investment strategy to make sure it is still aligned with your financial goals and risk tolerance. Consider factors such as your time horizon, your need for income, and your overall financial situation. It may be helpful to seek help from a financial advisor or investment professional to get a second opinion on your strategy.

Timing the market usually does not end well for the average investor. Try to ride out any ups and down.

Evaluate your investment portfolio

Once you have reviewed your investment strategy, it’s a good idea to review your investment portfolio to determine if any changes are needed. Consider factors such as the quality and diversity of your investments, your asset allocation, and any underperforming holdings. It may be necessary to sell some investments and reallocate your assets to more appropriate holdings.

Consider your options for generating income

If you are relying on your investments for income, it can be difficult to see your portfolio drop by more than 50%. It’s important to have a back up plan to generate income in the short-term, such as by taking on part-time work or finding other sources of income. It’s also important to have an emergency fund set aside for times of financial uncertainty.

Diversify your portfolio

One of the keys to weathering market downturns is diversification, which is the practice of having a variety of assest classes across different sectors. This can help to reduce the overall risk of your portfolio and provide some protection against market volatility. Consider adding investments such as bonds, cash, and alternative assets to your portfolio to increase diversification.

One of the best ETFs to hold is VT (global ETF domiciled in US) or VRWA (global ETF domiciled in Ireland). If you wish to invest in the US only, then consider the S&P500, which holds the largest 500 companies in the US. The ETFs are VOO (US domiciled) or CSPX (Ireland domiciled).

Stay invested for the long term

While it can be tempting to sell all of your investments when the market is down, it’s important to stay invested for the long term. This is because market declines are often followed by recoveries, and by selling your investments when they are down, you could miss out on the potential gains. It’s generally a good idea to stay invested and ride out market declines, as long as your investments are aligned with your financial goals and risk tolerance.

Again, time in the market works best for most investors. Try not to time the market.

Seek professional advice

If you are feeling overwhelmed or unsure about what to do with your investments, it may be useful to get help from a financial advisor or investment professional. These professionals can help you to review your investment strategy and portfolio, and provide guidance on how to navigate market declines. But read this amazing book from Andrew Hallam first.

Conclusion

In conclusion, it can be difficult to see your investments drop by more than 50%, but don’t panic. Reviewing your investment strategy and portfolio, considering your options for generating income, diversifying your portfolio, staying invested for the long term, and seeking professional advice are all important steps to take in order to weather market downturns and protect your financial well-being. Ignore the news and keep on investing in low cost ETF. Have the end goal of being financially independent in mind.

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