How To Recover From Stock Losses?
So you've got a lot of money in stocks and bonds, but you've watched in horror as the value of your investments has dropped in half. You are probably wondering if you should hang in there or bail out and cut your losses. Well, the truth is that if you bail out now, you will probably never be able to recoup your losses without significant investment in other areas. However, if you understand how the market works then you will understand that you can leverage the value of your underperforming stocks by buying more at a lower level, which will decrease the average value and help you gain more money when things start turning around again. Sound confusing? Well let me break it down for you so that you can understand how it works.
Let's say that you buy a stock at $20 dollars per share and it dropped to approximately $10 per share since you bought it. Well right now, you are down 10 bucks a share, which can add up if you have several hundred or more shares. However, if you cut and run you are going to lose all of that money without any way to make it back. Now, if the company is going bankrupt, you might not have any choice but to bail out while you can, but if it is a company that is simply down on its luck value wise, then never fear, here is what you can do.
If you start buying shares at 10 bucks a pop, your average cost basis will start going down as you buy more. If you had 100 shares at 20 bucks each, then when you buy 100 at 10 bucks, your cost basis will average out to 15 bucks each. Now, this still means that you are down money, but when the stock rebounds to 20 bucks a share, which is your original purchase price, you will have actually made money. This means that even if you have lost a lot of money in stocks, you can use the cheap prices to make money when the stock bounces back.
Now imagine that you buy 200 shares at 10 bucks each, your average cost now is about 12 to 13 bucks per share. You can easily recoup your losses when the stock goes back up to 15 even, and as a result you will have 3 times the shares that you originally had. This can be a powerful method to not only avoid from losing an arm and a leg in the stock market, but to make a lot of wealth when the market rebounds.
Many people see a volatile market and panic, selling everything they own. When they do this, they have no way to gain their money back and although they've got a nice tax write-off, the truth is that they've made a huge investing mistake. Follow the strategy outlined here and you can not only save your money, but easily make it back.