My next post is a guest post from Sienna! She talks about how to move on from bad investments. It’s so easy to beat yourself up about financial mistakes but these tips will help you move on. There’s no reason to keep dwelling on the past when you can enjoy the present. Enjoy!
Bad investments can leave a lasting scar – especially if there was a lot of cash on the line. It’s hard to find a new sense of direction, much less a renewed sense of optimism, after you’ve found yourself on the wrong end of the deal.
Recovering from a bad financial investment (and even beginning to invest again) is most certainly possible. It’s a series of measured steps and a small grief process.
It’s normal to feel upset or angry when things don’t go according to plan, but a re-examination of the situation might just change your perspective.
Don’t Hang On
When your investment starts to go wrong, pull out. Get out of there at all costs, even if you lose all the money you’ve put in so far. Throwing more cash at something that’s on fire is only going to cause your money to burn.
The best thing to do is create an exit strategy to escape the bad investment immediately. Even waiting a few more hours can equate to lost money.
A lot of people fall victim to the fallacy of sunk costs. They think that because they’re already in a situation, they might as well see it through.
They think more money, more time, or more effort might turn things around. You need to remember that you’re only an investor, and what happens with your money is largely out of your control.
Learn when to let go before things escalate. The only thing worse than being in a bad situation for a year is being in a bad situation for a year and one day.
Inaction or pondering only leaves you in a vulnerable window of time where more things can go wrong. Cut your losses while you still can. If you don’t, you’re going to lose a lot more than you bargained for.
Consider Your Options
With the majority investments, a loss is a loss. You have no sense of recourse and you just have to accept that the risk you took didn’t pan out in your favor. These are tough lessons, but what’s most important is that you learn from them.
If you invested in an unconventional way (i.e. outside of the stock market, the crypto market, or a backed and guaranteed crowdfunding campaign), things might be a little different. A select few investments will leave you with options upon exit.
Contractual investments, like some private investments, may involve stipulations that allow you to pursue what you lost. You might have been guaranteed some kind of return, even if it’s only a portion of what you invested.
If you had a lawyer review any agreements before you signed them, you might already be aware of what you’re entitled to.
Demanding it back is the best first step, but you’ll likely need to work with an attorney to pursue the party responsible. Remember that the investment failed for them too, and they’ll probably be hesitant to hand over what they owe in a reasonable timeframe.
They probably have a wealth of dissatisfied investors who are seeking the same kind of compensation you’re seeking. Getting your money back may be an uphill battle, especially if the company or individual you invested in worked solely above board. If they didn’t, the battle changes.
If you were defrauded and that’s the cause of your loss, you’ll definitely need a lawyer. Contact other investors who experienced the same outcome you experienced. Band together and combine forces to seek legal recourse against the individual you collectively agree defrauded the group.
Sometimes, criminal charges will be pressed against fraudsters who have stolen from their investors. This is scenario is more frequent than many people know.
One of the most noteworthy cases is that of Billy McFarland, the organizer of fraudulent music festival Fyre Festival, getting serious prison time for defrauding his investors.
Evaluate Where Things Went Wrong
Taking a look at where your investment went wrong might feel like picking a scab on something you want to heal. In truth, it’s never going to heal correctly if you don’t properly care for the wound.
Understanding how, where, and why things went wrong will reduce the likelihood of you finding yourself in a situation like this again.
Did you jump in without due diligence? Failing to read about a company and the projection of the relevant industry can lead you to throw money at a dying technology, a suffering branch of retail, or a company with a tumultuous history.
Know everything you need to know.
Read all relevant press releases from the past five years. Research the CEO and his or her credentials. Look at the way the company is changing. This information will largely determine whether or not something is a good investment.
Did you invest more than you could afford to lose? This is a common mistake that first time investors make. They’re eager to see returns, so they pour their savings into an investment they may not know much about.
Even if an investment seems like an incredible opportunity on paper, you should never invest more than you can afford to lose. Sometimes, factors beyond anyone’s control or ability to draw predictions can cause unexpected fallout.
Take Another Look at Your Budget
Figuring out where your loss falls in your personal financial plan is a crucial step in moving forward. If you were counting on a substantial return to help you make an important financial goal, that’s no longer an option. You might need to readjust the way you’re spending and saving to meet those goals.
Another reason to look at your budget is to help you determine how much you can realistically invest. Having the fully developed picture of your finances will prevent you from investing too much.
If you find that you’re currently living paycheck to paycheck, you might need to make some important financial changes before you’re in a position to invest again. It might be a bit of a sore spot to think about, but it’s absolutely necessary to consider.
Explore Better Investment Options
Changing your method of investment may be better for you. Hands off investments don’t offer much control, but they’re much easier for busy people. If you want to have as little involvement as possible, you’ll need to ascertain that your hands-off investment is truly worthwhile.
These types of investments are a lot more convenient, but they’re a lot harder to control. Mostly everything is out of your hands when you can’t call up the CEO of a company and tell him or her to do things your way.
If you want investment to be your job, where you’re in control of the outcome, there are other methods. You can invest in real estate and either improve it for sale or rent it out.
A rental property calculator can show you just how lucrative renting properties can be. Landlording is undoubtedly difficult work, but it definitely pays.
There are other unconventional methods of investment and cash generating side hustles that function as a part time job. Some people buy vintage clothing and resell it at much higher prices to the right buyer. Others do the same with antiques. Technically, anything you can do to turn your money into more money is an investment. There’s an option for everyone.
Invest in Yourself
Spend the money you would have spent on investments on something different. Why not invest in yourself? Taking classes about investment or financial management can make you wiser.
When you develop a scope of every nuance involved in investment, you’ll easily be able to distinguish a great opportunity from a risky opportunity. Knowledge can make you feel a lot better. You’ll be confident in your choices and have a renewed sense of your ability to invest.
Enlist the Help of a Financial Advisor
If you can’t become your own financial advisor, enlist the help of a great one. Hiring a financial advisor requires a wealth of research. There are a multitude of questions you should ask to assure that the financial advisor you intend to work with is suited to your needs.
Before you meet with a potential advisor, prepare a list of these questions. The most effective questions include:
- How do I start working with you?
- How are you paid for your services?
- Have you ever been disciplined?
- How much experience do you have as a financial advisor?
- What are your qualifications?
- What do you usually charge?
You’ll want satisfactory answers to all these questions, but you shouldn’t stop your considerations there. If you can, find a financial advisor who is familiar with investments in the industry where you intend to invest.
If you and your advisor are on the same page, the advice you’ll receive will be of higher quality.
You also need to be sure that this person is easy to communicate with and contact when you have questions. It’s not uncommon for financial advisors to be very busy people.
It’s unreasonable to expect that they’ll answer the phone on the first ring when people call at odd hours. At the very least, you need to be sure that the financial advisor isn’t so overburdened that he or she won’t have time to discuss your financial future with you or answer your questions.
You’ll also want to avoid working with financial advisors who use jargon heavy language to explain things to you.
If they could talk all day and you still wouldn’t have a clue what was going on, that’s a bad sign. This can lead to you making decisions based on misunderstanding, and it can also indicate that your financial advisor is a little bit shady.
Above all, the most important thing to ascertain about a financial advisor is whether or not they are a fiduciary.
Fiduciaries are special financial advisors who are required to act only with your best interest in mind. Many people are shocked to learn that not all financial advisors must meet that requirement.
Some financial advisors make money based on the commissions of products or services they’re selling you. If you don’t buy as much as possible, they don’t have an income.
These people are not fiduciaries – they have special interests, and act more as a paid intermediary between people and other services. It’s right to be skeptical of someone whose sole livelihood depends on selling you things – particularly if that person was hired to help you be better with your money.
What Have You Learned?
In conclusion, there is always some level of risk with investment. Careful preparation, lots of reading and learning, and sometimes professional help will be necessary to minimize risk factors associated with investment. Step back and regroup for a little while. Don’t start investing again until you’re ready.
When you’re confident enough that you have a great handle on the situation and the dust has settled from your previous unsavory investment experience, try again. You’ll be much wiser and a lot more prepared.
Sienna Walker is an avid careers blogger, a lifelong education advocate and a huge fan of creating smart, passive income. She is often found online, participating in online discussions with students who are entering the job market, experienced employees, and employers alike. Feel free to comment on her Twitter @SiennaWalkerS if you enjoyed the article.