The S&P 500, one of the most used gauges of US stocks’ performance, is down 6% this year. The GSE-CI, a measure of stocks’ performance on the Ghana Stock Exchange (GSE) is also down 2% this year. For investors, this is one of those moments that makes you reassess your investing philosophy and make you wonder whether you should adjust your portfolio.

As financial advisers, we are always telling people to avoid moving in and out of the stock market based on recent performance. This is because you may end up buying after stocks have reached their peak, and sell right as they have bottomed and are about to rise again. This timing (or should I say) mistiming of the market is going to cost you a lot in losses, dividends forgone and trade commissions. This is what I wrote about in my last post.

However, it is very difficult to tell equity investors to stay put when they receive their statements and see negative returns or underperformance compared to fixed income products. No one wants to lose money and the impulse to sell may be quite strong. Part of this problem is the failure of fund promoters to explain to retail investors that the money they put in equities should be funds they can afford to leave alone in the long term. Another part is the inability of retail investors to accept that losses in stocks are a normal part of investing.

So what does one do in a situation where they are losing money from investing in stocks? Firstly, you should be sure that your portfolio is diversified enough to begin with. This is one of the ten reasons why I recommend mutual funds, because they have diversification built into them. If you are not diversified, then you should take steps to do so in order to reduce the risk of losing your whole investment.

But if your portfolio is diversified and you have exposure to stocks, fixed income, real estate and money market products (including treasury bills), then what you should do is not to panic but to stay put. The GSE has returned an average of 29% per year from 1990-2017, yet it has not been a smooth ride as the chart below shows.

And that chart does not even include the returns from dividends. I believe that no investment portfolio is complete without some inclusion of stocks. Yes, there will be some years of negative returns. There will be volatility, but few investments offer the kind of upside that stocks have proved to be able to deliver over the long-term.

Finally, if you are well diversified but you cannot afford to lose money within the next year or two because you are planning to use the money for living expenses, education, housing and so on, then you should move that money to money market products like short-term fixed deposits or treasury bills. Your money in equities should be willing to stand the pain if it is to benefit in the gain.