What causes fund losses? Will fund losses result in a loss of principal?

When the market conditions correct, funds will also retract, and many investors' funds will suffer losses. If the fund loses money, what should you do if the fund loses money? The following is a collection of reasons that can cause fund losses. Let’s take a look!

What reasons can cause fund losses

There are many reasons for fund losses. The following are some common reasons for fund losses:

Market risk: The market in which the fund invests may experience adverse fluctuations, such as a drop in the stock market and a drop in bond prices. etc., resulting in a decrease in the value of the Fund’s investment portfolio.

Individual investment risks: Certain individual stocks, bonds or other assets invested by the fund may face specific risks, such as poor company performance, bond defaults, etc., resulting in related investment losses.

Interest rate risk: There is interest rate risk when the fund invests in fixed income products such as bonds. Rising interest rates may cause bond prices to fall, thereby affecting the net value of the fund.

Operational risk: The fund manager’s investment decisions and operational errors, such as wrong industry allocation, wrong stock selection, etc., may lead to losses.

Fund redemption pressure: When a large number of investors redeem fund shares together, the fund company may face redemption pressure and have to liquidate the assets held at a lower price, resulting in losses.

Will a fund lose all its principal?

Fund losses may not necessarily mean it loses all its principal. The value of the fund is closely related to the fluctuations of the asset portfolio, and the net value of the fund may fluctuate up and down. When a fund suffers a loss, the net value of the fund will decline, but this does not mean that all investors' principal will be lost. However, market conditions and fund risks are unpredictable and may cause fund losses to exceed the principal amount. Therefore, investors should make prudent investment decisions based on their own risk tolerance and investment objectives, and regularly pay attention to the fund's performance and risk profile.

What to do if the fund suffers a loss

1. Switch fund mode

In order to meet the needs of different investment users, the same fund company will launch different funds according to the level of risk. Different types of funds and support business conversion between different funds. Therefore, if Fund A suffers a loss and feels that the risk of loss is high, you can consider switching to a low-risk fund.

2. Cover the position at the right time

If the fund you invest in is currently in loss, but there is a tendency to turn around in the future, it is better to cover the position at this low level and increase the investment amount. This method tests investors' vision and judgment and is suitable for fund products with excellent historical performance and good operation.

3. Stop loss in time

The method of stop loss in time requires investors to set a stop loss level. That is, when the fund loses to a stop loss level, it must sell decisively and switch investments. Other funds may wait and see for the time being and wait for opportunities to buy again.

What to do if the fund has lost a lot recently

1. Stop the loss in time: Stopping in the wrong direction means moving forward

It is said that the fund should stop the loss and stop the loss. Is this really the case? In fact, this statement has a series of prerequisites, such as a fund that is suitable for you, a good outlook on the market, and that the fund itself is fine. If any of the above three points are not met, you can stop the loss in time. After all, you are making a mistake. The direction to stop is to move forward.

1. Exceeds your risk tolerance

In fact, everyone should think about this issue clearly before buying a fund. For example, the maximum loss you can bear is 40%, then when the fund falls by more than 40%, it is recommended to sell the fund in time or change to a stable fund.

Because different funds have different risks. If you buy a fund that is not suitable for your situation and risk tolerance, the fluctuations in the fund will definitely affect your normal life and investment mood.

The first step in any investment and financial management is to invest within your own risk tolerance. If you exceed your risk tolerance, to put it harshly, it will 100% not end well.

If your fund position exceeds your risk appetite and is a heavy position, or even a full position. Or if you hold dozens of funds without a plan, it is better to cut off the funds and adjust positions earlier. Because when the market adjusts, you cannot afford such a large adjustment. For example, you can only accept an adjustment of 10%, but your position is too aggressive. Because you did not stop the loss in time, it is very likely that the adjustment will be 20% or more in a few days. What is even more frightening is that the adjustment may not be over yet. Even if this round of adjustments is over, there will be more fierce ones later, and sooner or later, you will be thrown out. If you expect to lose more and get out, it is better to get out earlier. The same is true for friends who hold dozens of funds. They are full of joy when the funds rise, but when you adjust, you will find it difficult to cover the position. With such a large number, it is impossible to cover the position in a targeted manner. After a few times, the position will be heavy or even full, and you will only lose more. .

2. Extremely not optimistic about the market outlook.

A major prerequisite for a fund to make money is to be optimistic about the stock market trend in the long term. Although the fund can ride through the bull and bear markets, it will fall less in the bear market and rise more in the bull market, but the overall trend is still consistent with the broader market.

If the market adjusts for a long time or there is no market, then the fund will most likely not make money, or even lose money. So if you are short on the stock market in the medium to long term, then the fund also needs to stop losses.

Of course, no one can accurately judge the market trend. We only stand from the perspective of ordinary fund investors and objectively analyze the overall operating strategy of fund positions. If you are pessimistic about the market outlook for a long time, then the stop loss operation at any time is correct, and the more timely the better.

Of course, for many experts, most people think that everything that falls is a gold pit, and those with high returns are those who dare to buy low, because the profit mechanism of the fund is to buy low and sell high, but the main premise is The key is to be able to hold on to it and be bullish on the later market.

3. Performance cannot outperform the market in the long term

No fund manager can outperform the market at every stage. The A-share market is relatively good. For funds that are biased toward debt and have low stock positions, it is normal for funds to underperform the market. For industry-themed funds or funds with distinctive styles, if they are not in the spotlight, they will underperform the market. However, if it underperforms the market for three or four consecutive quarters, especially when the market style rotates to the fund's holding style, there is still no excess return, so such a fund should be held with caution.

In addition, when the fund scale reaches the "ceiling" of scale determined by the investment strategy and investment capabilities, continued expansion of the scale may lead to strategy failure and mediocre performance, and it may be difficult to meet investors' high expectations after purchase. .

In the face of the above situations, instead of holding on to it, it is better to sell it as early as possible and convert it into a fund with excellent historical performance and relatively stable performance, or a simple and transparent index fund. Don't wait until you are stuck in the mud. The more you lose, the more reluctant you will be to get out.

2. Cover-up: Make a budget for cover-up and set a reasonable cover-up plan

Buffett has a famous saying: Others are fearful but I am greedy. Many small partners will choose to cover their positions during the decline, covering less if the price falls less, and covering more if the price falls more. There is no problem with this theory, but the reality is that most people's cash flow is limited. During a long-term shock correction, it is easy to fall into the embarrassing situation of "I copied, I copied, I copied again? I ran out of bullets." Steve Jobs said, "To live, to change the world." But the first important thing is to "live first".

No one can predict when the sun will rise again, so it is especially important to budget for replenishment and set a reasonable replenishment plan.

Methods to cover positions

Every time a position falls, you must be prepared for 1-2 years. The next step is how to set up a plan to cover positions.

You can add positions according to a fixed increase ratio and strictly enforce discipline. Or according to the pyramid adding method, when the fund declines, the position added each time will be gradually increased as the net value declines, thereby amortizing the average cost of investment.

For example, if the current net value of Fund A is 1.2 yuan, and we set the increase in position to fall by 10%, then we will increase the position by 1,000 yuan; when the net value drops by 20%, it will reach 0.96 yuan. If the market outlook continues to fall, then add 3,000 yuan to the position until the net value rises.

As the net worth declines, this method is a test for investors’ cash flow. If the cash flow is sufficient to support it, it can minimize the cost of holding positions.