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Investment Portfolio Losses

As the economy fluctuates we can see either gains or losses in our portfolio. Portfolio gains are expected. Large portfolio gains are celebrated and portfolio losses – not so much. Everyone responds differently to portfolio losses but most ponder what went wrong for the portfolio to have lost value.


Types of Physician Investors

A physician’s investment portfolio is often diversified with a mix of stock funds, bond funds, real estate, and some cash.

The novice investor will buy certain funds and not quite know when to sell them or when to buy more. They usually have most of their investment dollars in their retirement accounts such as 401k’s, 403b’s, and IRA’s.

The intermediate investor will have come up with an asset allocation and is likely doing some rebalancing from time to time. They have a buy-and-hold strategy of index funds. They aren’t quite sure what they will do with their investments in the long-run but hoping to hold on to them for as long as possible to benefit from compounding investment gains.

The expert investor has a healthy balance of investments held in retirement accounts and some in a private brokerage. They have dealt with major portfolio losses as well as healthy gains. They aren’t looking to the market to see how it reacts but are instead looking for the next level of diversification they can achieve. This person is invested in stocks, bonds, real estate, cash, and looking for more income streams.


Our Portfolio Expectations

As investors we expect our portfolios to go up in value which is, after all, why we are investing in a specific investment in the first place.

Though the sentiment is appropriate its timing is often not. An investment doesn’t always have to follow an upward trajectory in order for it to be a good investment.

In the long-run a lot of the miscellaneous factors which affect the securities market even themselves out. Since companies like to see profits and growth it’s in their best interest for their stocks to offer positive gains.

I would liken it to my patients who think that they are unhealthy because they caught a viral bug. They are worried that their 5-year track record of not getting sick was an indication of health and this current viral illness is a sign of something more ominous with their health.

When our portfolio experiences gains then we brush that off as a given without spending any time figuring out why a gain took place. I think it’s worthwhile to do the same with investment portfolio losses.


Following The Market

I don’t watch the news and I don’t follow the market. To phrase it more accurately, I don’t let the news media advertise to me and I don’t consume mainstream investment news.

Instead of having my brain on receive-mode 24/7 I tune in once a month to specific sources to update the status of my investment portfolio.

Any investment portfolio losses are logged and I continue investing based on my investing strategy – a treaty I formulated with myself during cool and collected times.


Emotional Investing

The reason it’s good to have a financial adviser is because they are numb to market fluctuations and don’t respond emotionally. In regards to money I’m not a rational personal and minimally intuitive which is why I have strict protocols which I run by my financial adviser constantly.

As physicians we work our asses off and are exposed to more litigation risk than market risk. Yet when we see our investments drop in value, when we experience a portfolio loss, we lament the dollars we have lost.

The problem with such emotional investing is that it gives the markets the upper hand and cripples us. It’s those brief emotional responses on which large brokerages capitalize.

Though many of us may not sell any of our funds during a market crash or correction, we do develop enough fear that it often keeps us out of the market for a while.

During such market fluctuations it’s common for the physician investor to either keep more money on the sidelines in form of cash or look for alternative investment options which aren’t part of their investing strategy.


Portfolio Perspective

Let’s say I have invested $400k over my investing career and after 10 years have a portfolio of $800k. The $400k was real dollars, actual money which I earned and deposited in an account, and purchased investments with.

The other $400k which I gained as profits on my investment are real but only on screen, in the place and time where they take place. Unless I sell my funds and position myself in cash then I don’t have a real investment gain.

So a brutal way of saying it would be that I don’t really have anything except for maybe my initially invested $400k. The balance of $800k is a fluid concept and can fluctuate quite a bit at any moment.

Fortunately, when my portfolio is down by 50% it’s the same phenomenon – nothing is set in stone until I sell my funds. A 50% decline which would take my $800k down to $400k is a phenomenon that’s on a screen, in a place in time, that’s waiting for an action to take place.

If the underlying investment is a sound one, if the US economy as a concept still continues to exist, and if the US dollar remains a viable currency then no actionable events have taken place – no need for me to change my investing strategy.

I shouldn’t be bothered by this portfolio loss because I obviously didn’t have an imminent need for this investment otherwise it would have been converted to cash or a SPIA already.


Portfolio Balance Erection

I have far less emotional investment in my portfolio balance than others who ask me about it. I’ve publicly shared my portfolio balance here on this blog as well as with friends and family.

If it’s normal for you to feel good about a high portfolio balance then be prepared to feel bad when you experience a portfolio loss. This yoyo-ing isn’t going to help us become expert investors.

The novice Dr. Mo would sit there and do the math on my portfolio balance and figure out exactly what it meant based on my spending, my income desires, and current market positions.

The expert investor which I’ve now become has learned that my present portfolio balance really doesn’t mean a whole lot except to help me become an even better future investor.

My portfolio balance is a guide, a sign of how things are going but not as concrete as we’d like it to be. In fact, my portfolio balance has become a lot less relevant for many reasons.


Investment Portfolio Diversification

When I first started to diversify my portfolio I was looking to add some bonds to my stock index funds. Later, and slightly more sophisticated, I began to tilt my portfolio more evenly towards international equities and added in some REIT’s.

After watching the gyrations of my portfolio for a few years I realized that from a bird’s-eye view the portfolio will always keep going up which made the bipolar blips less relevant.

My next level of diversification came by adding in some physical real estate into my portfolio. I now had a healthy and diversified investment portfolio which I can ride out for the next few decades.

It doesn’t stop there.

The next level of diversification came when I realized that I needed to further decrease risk by being less reliant on a single source of income. I decided to stop working for one company and took on multiple gigs as a per diem.

My next step is less focused on chasing more alpha, trying to gain double-digit investment returns, but instead to diversify further. I am looking to lower my cost of living even more by moving to Spain and I am looking to pursue an entrepreneurial venture to generate even more income streams.

More income streams but not more income. If I am making some money from a business, some money from seeing patients, some from consulting, some from teaching online courses, and some from writing then I have a very well-balanced income source which decreases my reliance on my investment portfolio further.


Fiddling too much with your investments could hurt your profits.

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