5 Smart Steps to Handle Floating Loss When Your Portfolio Is Deep in the Red

What is floating loss? Have you ever opened your Mplus Global app and felt your heart sink seeing glaring red numbers on your portfolio?

You are not alone. The feeling of fear, anger, and disappointment when you see your investments start "eating into your capital" is completely normal. But this is where a successful investor differs from one who simply follows emotions.

When your portfolio experiences a loss (also known as floating loss), it is not the end of the world. On the contrary, it is the most critical time for you to hold on to discipline and act rationally.

In this article, we will share 5 steps you can take to deal with a "struggling" portfolio and formulate an effective recovery strategy.

What Is Floating Loss?

"Floating loss" is an unrealised loss that occurs when the current market price of a stock falls below its original purchase price.

It is called floating because the loss has not actually materialised yet — it only exists "on paper".

This loss only becomes a realised loss when the investor sells the stock at a price lower than the purchase price.

Even though the stock has not been sold, floating loss still reduces the overall value of the investor''s portfolio, because the equity (capital) value of the investment has decreased according to the current market price.

And yes, this can be painful to look at and may keep you up at night, feeling like you are about to go broke.

Key Characteristics of Floating Loss

1. Unrealised:
   This loss is not final because the investor has not sold the stock yet.
   
2. Dynamic:
   Its value constantly changes according to the rise and fall of the stock price in the market.
   
3. Impacts equity:
   It reduces the total net value of the investor''s account, even though actual money has not been lost.
   

Temporary:
This loss can disappear if the stock price rises back above the purchase price — at that point, the floating loss turns into a floating profit.

Characteristic	Floating Loss (Unrealised Loss)	Realised Loss
Status	Unrealised; position still open.	Realised; transaction completed.
Action	Stock has not been sold.	Stock has been sold.
Impact on account	Reduces equity value (overall portfolio value).	Permanently reduces account balance.
Action required	No action required (not yet sold).	Sale of asset required to confirm loss.

"Floating loss" is not an actual loss — it only reflects a temporary decline in the market value of stocks in your portfolio. As long as the investor does not sell the stock, the loss can still change — either recovering into profit, or becoming an actual loss if sold at a lower price.

Step 1: Manage Your Emotions First

Losses in investing often trigger a psychological bias called ''Loss Aversion'' — we feel the pain of losing twice as intensely as the joy of gaining.

Practical Strategies:

Remember Your Long-Term Goals: If you are investing for retirement 20 years from now, today''s loss is merely part of the "noise" over the long term. Refocus on your goal timeline.

Step Away from the Screen (Briefly): If the market is plunging severely, avoid checking prices every hour. Excessive monitoring will only heighten your sense of panic.

Focus on Value, Not Price: Recall why you invested in that company or asset. Are the company''s fundamentals still solid? Is it still a good business, or is the market simply "overreacting"? As long as the fundamentals are strong, let the panicking market do what it needs to do.

Step 2: Analyse the Cause — Is This Loss Normal?

Not all losses are the same. Before you act, determine the type of loss you are facing:

A. Systematic Loss (Market-Wide Crash)

This is a loss experienced by almost all investors — the entire stock market has fallen.

• Best Action: Rebalancing. This is a golden opportunity to buy quality stocks at a discount. You would sell relatively stable assets (such as ASB or Cash) to buy back stocks that are now ''excessively cheap'', bringing your portfolio back to your target risk-based asset allocation.

B. Unsystematic Loss (Poor Stock Pick with Weak Fundamentals)

This is a loss that only affects a handful of your assets because the company''s own performance has deteriorated (for example, the company is being investigated by Bursa or its business model is no longer profitable).

Best Action: Cut Loss. Do not let a small loss snowball into a massive one. If you have reassessed and found that the company''s fundamentals have genuinely turned bad, do not keep holding just because you are "reluctant to part with your capital". Sell and redirect your remaining capital to a better counter (this is known as Opportunity Cost).

Step 3: The Disciplined Investor''s Weapon — Dollar-Cost Averaging (DCA)

When the market falls, disciplined investors see it as an opportunity to lower their average purchase cost.

The Dollar-Cost Averaging (DCA) strategy involves investing a fixed amount at regular intervals regardless of the market price. When prices fall, your money buys more units.

Important Note: This strategy is most effective when used on assets you believe will recover in the long term (e.g., Blue Chip stocks or Diversified ETFs).

Buying at a ''Discount'': When your portfolio is red, DCA forces you to buy the same stock at a lower price. This automatically lowers your average cost of holding.

Faster Recovery: With a lower average cost, your portfolio requires a smaller price increase to return to break-even. You accelerate the recovery process.

Step 4: Review Your Asset Allocation and Risk Tolerance

Seeing losses is the best time to be honest with yourself about your risk level.

1. What Was Your Original Allocation? (Example: 70% Stocks, 30% Money Market).
2. Were You Too Aggressive? If you are panicking severely and losing sleep over a 10% loss, perhaps your allocation (e.g., 90% Stocks) is too risky for you.
3. Perform Proper Rebalancing: If you find that you cannot accept that level of risk, you may adjust your target allocation (e.g., from 70/30 to 60/40) and rebalance to become more conservative. Move a portion of your funds from Stocks to ASB or Money Market instruments that are safer.

Adjusting your target asset allocation is normal as your age or financial commitments change.

Step 5: Utilise "Idle Cash" and Emergency Funds

Remember the "Golden Rules" of investing: Only invest money that you do not need within the next 5 years.

• Your Emergency Fund Is Your Fortress: Ensure your Emergency Fund (covering 3 to 6 months of expenses) remains intact. This is your psychological safety net. You will not be pressured to sell your losing investments at low prices simply because you need cash to pay bills.
• Use New ''Idle Cash'': If you have surplus income that you do not expect to use in the near term (i.e., Idle Cash), use these funds to implement the DCA strategy. Market downturns are a rare mega sale for quality assets.

Final Words:

If your portfolio is currently in the red, the best action is to act now. The longer you wait, the harder it gets to recover. There are no guarantees in the world of investing — but with the right strategy, you can protect and regrow your assets.

Feeling stressed when investments drop is normal. But do not let fear control your decisions.
Remember — investing is a long-term journey. Today you may be at a loss, but if you remain consistent and disciplined, one day those losses will turn back into gains.

Losses are part of the investment process. Instead of lamenting, use this experience as a "tuition fee" for learning. Stay disciplined, stick to your "asset allocation" strategy, and view today''s losses as an opportunity to buy quality stocks at lower prices.

The question is, will you let emotions control your investment decisions, or will you act like a rational investor?

FAQ - Floating Loss and Portfolio Recovery

1. What is floating loss in stock investing?

Floating loss is an unrealised loss that occurs when the current market price of your stock falls below the price you originally paid. It is called "floating" because the loss only exists on paper and has not been confirmed through a sale.

2. Should I sell my stocks immediately when I see floating loss?

Not necessarily. First, determine the cause. If the overall market crashed (systematic loss), it may be better to hold or rebalance. If the company''s fundamentals have genuinely deteriorated (unsystematic loss), cutting your losses early may be the wiser move.

3. What is Dollar-Cost Averaging and when should I use it?

Dollar-Cost Averaging (DCA) is a strategy where you invest a fixed amount at regular intervals, regardless of stock prices. It is most effective for fundamentally strong stocks or diversified ETFs during market downturns.

4. How much emergency fund should I keep before investing?

Financial experts recommend maintaining an emergency fund covering 3 to 6 months of your living expenses before allocating money to stock investments. This prevents you from panic selling during downturns.

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