Investment in the stock market could be risky as it’s prone to market volatility. The fluctuations in the market often take a hit on the portfolio, thus wiping out the hard-earned money of the investors. However, there are a few things that one needs to keep in mind to reap the maximum benefits from their portfolio, especially in cases when the portfolio is losing money instead of growing in value.

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To recover from losses, there is a need to understand what happened and why things went wrong in your portfolio. Read further to know what actions you can take if your portfolio is stuck in losses.

Possible causes of losses in the portfolio

Investors in stock markets could face losses due to multiple factors, including the kind of stocks they choose.

Market fluctuations: Due to volatile market conditions and frequent fluctuations in stock price, the value of investments also changes and can decrease due to shifts in supply, demand, economic indicators, geopolitical events and other factors. It’s important to keep a watch on multiple factors that could impact the stocks in your portfolio. You should take appropriate steps like buying or selling a particular stock to minimise losses.

Focusing on single investments: Many investors often concentrate their investments in a single company, or sector, which exposes the portfolio to higher risk. A diversified portfolio across segments can help to mitigate the risk.

Industry risks: Certain industrial or company decisions in regulations can also lead to sudden drops in stock values or the devaluation of assets.

Economic conditions/slowdowns: One of the primary factors including economic conditions and slowdown can also collectively contribute to a decline in the value of the portfolio. 

Interest rate: A constant change in interest rates that are set by the Reserve Bank of India or other institutions can also impact different asset classes.

While these factors can impact the portfolio value, here are a few things you can do to bring it back on track.

How to recover a portfolio from losses?

Reviewing and rebalancing: One should begin by thoroughly reviewing the investment portfolio to identify which investments are causing losses and assess the reasons behind it. Once this is done, you can rebalance your portfolio.

Reevaluate goals and risks: Before moving forward with the portfolio, one should reevaluate his/her financial goals and risk tolerance and understand if the goals or risk appetite has changed. In accordance with your goals and risk appetite you can adjust your investment strategy.

Diversify investments: To avoid risks, you can diversify your investments by spreading across different types of assets like stocks, bonds and possibly real estate. Diversification can help reduce the impact of losses from any single investment.

Cut on losses: To cut down on losses, you can consider selling investments that have consistently underperformed and are showing no signs of recovery.