Investment Advisor Compass | How to Handle Fund Losses in Investing

(Source: Shanghai Stock Exchange ETF Home)

Source: Huatai Securities Submission

Since the end of February this year, affected by sudden overseas geopolitical conflicts, A-shares have experienced a significant pullback, with the Shanghai Composite Index, STAR 50, and other broad-based indices turning negative this year. Many investors’ account returns may also have suffered losses.

In fund investing, losses are a common challenge faced by most investors, with many falling into the dilemma of “getting deeper into the trap” or “cutting losses only when it rises.” In fact, the key to unlocking losses is not about “toughing it out” or “blindly operating,” but first identifying the cause of the loss, then using scientific strategies to cut losses, reduce losses, and recover capital. The following practical methods are suitable for ordinary investors to quickly get started and avoid high-frequency pitfalls throughout the process.

First step to unlock losses: diagnose first, distinguish the type of loss, and avoid blind operations. Many people’s first reaction after being trapped is to add positions or cut losses, but they overlook the crucial step—first determine the root cause of the loss. Common types of losses fall into three categories: market-wide being trapped (overall market decline, similar funds generally losing money), fund-specific being trapped (market stable but fund underperforming peers, manager resignation, or style drift), and operational being trapped (chasing highs and selling lows, full position entry). The method to judge is simple: compare similar funds and benchmark performance. If everyone is falling together, it’s a market cycle issue; if only your fund keeps declining, then be alert to problems within the fund itself.

Core strategy for unlocking losses: tailor strategies based on different situations, avoid a “one-size-fits-all” approach. For different types of losses, corresponding solutions should be applied, balancing practicality and risk control.

If the fund itself is high-quality (such as broad-based index funds or stable hybrid funds), and the loss is only due to market fluctuations, and you have more than three years of idle funds, you can adopt a phased replenishment strategy. For example, increase positions based on the loss magnitude: add once if loss is 10%-15%, then add a second time if it drops another 10%-15%. Each addition should not exceed 10% of total funds, with intervals of 1-2 months to avoid exhausting funds prematurely and failing to bottom out. This method can effectively lower the average cost, enabling a quicker return to profit when the market rebounds.

If the fund continues to underperform peers by more than 30%, or performance collapses after the fund manager resigns, or the industry logic behind the layout breaks down (such as long-term decline caused by policy negative signals), decisive stop-loss is the best choice. Stop-loss is not about giving up but about avoiding larger losses—rather than holding onto the hope of a rebound, it’s better to sell promptly, reallocate remaining funds to better assets, and use new gains to offset losses, avoiding falling into the trap of “never recovering.”

If the market is in a volatile phase, with fund net value fluctuating repeatedly, a “rebound reduction, pullback addition” band strategy can be used: when the fund rebounds, sell part of the position; when it pulls back near previous lows, add back the sold position. Repeat this to lower the cost and gradually unlock the position. However, note that band operations should control frequency to avoid excessive trading fees eroding gains. For on-market products like ETFs, grid trading can also be used to buy low and sell high.

The essence of fund investment is long-term value investing; unlocking losses is just a remedial measure. Instead of recovering after losses, it’s better to avoid them beforehand—by not blindly chasing hot spots, not fully loading positions, and choosing funds that match your risk tolerance. This is the fundamental way to prevent being trapped. If already trapped, stay patient, follow the strategy, and most quality funds will eventually return to reasonable net values with market cycles. Blind operations may cause missed opportunities for recovery.

Author:

Wu Chuyi S0570619110030

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Financial management involves risks; investments should be cautious. The information and data in this material are for reference only, some sources are from public or third-party channels, and their accuracy, completeness, or reliability are not guaranteed. The opinions or viewpoints expressed aim to be objective and fair but are subject to timeliness and limitations, serving only as auxiliary references. Under no circumstances do they constitute investment advice or basis for investment decisions, nor do they equate to actual operational strategies of the “Peace of Mind Investment Portfolio.” Investors should make independent and prudent investment decisions based on their own circumstances and bear the investment risks themselves. Our company holds the “Securities Investment Consulting” business qualification approved by the China Securities Regulatory Commission, with license number: 91320000704041011J.

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