Let me start by asking you a simple question and that is why do you do an investment? The obvious answer that you probably and most surely come out with would be to make profits. Yes you are absolutely right. Each investor goes for an investment because he or she is looking to earn profits from the invested sum. But what about when your investments does not give you any profits. Rather on the contrary you suffer losses on your invested sum. Would you then still like to continue with your same investment portfolio? What would you do in such circumstances?
The perfect solution would be to flush your bad investments that are not giving you any profits. But it usually happens that either investors do not keep track of their investments or they just continue with the same investment portfolio. Both of these ways would not lead to fulfill your investment goals. As a proactive investor whose only aim to invest is to make profits you should always keep an eye on your investment portfolio and check how your investments are performing in comparison to the prevailing market conditions.
You should be vigilant enough to come to the conclusion that a particular investment has gone bad and it is the right time to flush it out. The more you delay the required action of leaving a particular investment; the chances are that you may suffer more losses. But does there exist any benchmarks or criteria that can help you arrive at the conclusion that it’s time to flush the bad investments. Yes this is a very crucial and critical step in dealing with your investments.
Monitor your Investments
As a step number one, you should always regularly monitor the performance of your various investments. The period of monitoring can vary and it can be in accordance with your own convenience. It can be a month, you can also decide to review your investments after a quarter, in a six months time or even after a year. In our opinion a quarterly review would be just perfect in most situations.
With a periodic review in place you get to have a clear picture about all your investments whether they are in stocks, mutual funds, precious metals, property or something else. You would then have your hand perfectly placed on the pulse of the prevailing market conditions. You would then come to know the exact market scenario and the present performance of your investments.
Having adhered to a periodic review, the second big step comes in the form of marking your investments as good or bad. At this juncture, there are some points which you should always be careful to follow. First of all, it is important to note that you must not be quick in marking your investment as bad.
By this we mean that you should stick to your investment for a period which ranges from two to five years(approx). This is so because sometimes the overall market conditions may be bearish and so your investments too would not have any scope for appreciation. Sometimes local conditions, other economic situations too influence the performance of your particular investments. So give enough time to your investments to appreciate and still if they are performing poorly then surely sell them off.
Then creating a benchmark also helps in deciding whether your investments have gone bad. So you should create a benchmark and if your stock goes below this particular mark you should sell that investment to protect your investment interests. For example, you can set a benchmark like the S&P 555 and if your fund goes below this benchmark, you can sell that off. Again if your fund is performing poorly or is down in an Up Market continuously for a period of more than a year then it would be better to mark it as a bad investment and flush it out from your investment list.
Bad investments may crop up not only in stocks or mutual funds, they may also arise in real estate investments as well. Suppose that you had purchased a property in the hope that its prices would rise. You waited for three years patiently hoping that its prices would go up. But it does not happened that way. The prices were stagnant. In such a situation there would be two choices in front of you.
Either you hold the property in the hope that prices would appreciate or you can decide to sell that one off. When you decide to sell a property in view of its stagnant prices to cut your losses you should check for few things first. See whether this is a general economic slowdown or prices of that particular region is not appreciating. If the case is the second one then it is the right time to sell the property and look out for a new one in some other region.
So likewise you can have some other type of investment too. And in those cases too you can follow the guidelines and precautions mentioned as above. The important thing is that you should never forget and ignore your investments. Once you do an investment it is also important to monitor and review them periodically. Then only you would be in a situation to decide whether you are holding a good investment or a bad one. And if you have a bad investments then the obvious solution is to flush your bad investments and have new and suitable investments in place of them so that you may achieve your desired investment goal of making profits and gains.