Bouncing back from a portfolio hit can be a real challenge given that the numbers will suddenly be stacked against you.  Fortunately, however, there are a few strategies that investors can use to minimize their losses and start anew.  It is important to note that while taking action is often far better than simply staring off blindly into the distance, each new investment decision will have both benefits and drawbacks.

Tips for Bouncing Back from a Portfolio Hit

Assessing Your Options

There are essentially three things that investors can do after having sustained considerable losses.  They can raise the proverbial white flag and sell of their remaining assets, buy more stocks and take a proactive and offensive position or they can sit still and see what happens.  Selling will eliminate the potential for more losses but it will also eliminate the possibility of future gains.  Buying more stock often allows people to capitalize on far cheaper prices than those that were available during a first buy-in, but it will additionally open the door to new risk.  Taking no action whatsoever will likely lead to continued losses and will increase the likelihood of missed opportunities as well.

Take Stock Of Your Losses And Your Current Position

The first and most important step for investors to take before making any major decisions is to simply assess the overall damages that have been done.  Calculate the total value of your portfolio and the total amount of money that you have lost.  This is important for determining your current risk tolerance and for deciding whether or not you wish to take a passive approach to this development by standing still, selling or take an aggressive approach and buying what you can.  This will also give you the opportunity to learn which investments were hit the hardest or which investment types have proven to be the most vulnerable.

Assess Your Financial Ability

Your ability to buy more will be dependent upon your cash reserves.  Thus, you should take stock of your available cash or any investments that have been kept on the sidelines, such as money market accounts.  With little money immediately available to you, you may wish to sell-off and place the proceeds of these sales into a money market account.  This will allow you to rebuild your cash reserves for future investment opportunities.  Giving yourself a break like this will not only enable you to rebuild your purchasing power, but it can additionally help you get your emotions back in check.

Reallocate Your Assets

If you choose to remain in the game, rebalancing your portfolio is essential.  You should determine whether any single investment is leaving you over-exposed or if the balance of your portfolio is no longer in line with your short and long-term investment goals.  This will invariably mean decreasing certain holdings and increasing the others.  Make sure to give yourself ample time to recover both emotionally and financially, however, before choosing to make any dramatic portfolio changes.