#205 What to Do If You Lose Money on an Investment

Hey, everyone. Hope you're having another great week. This week we're going to talk about a topic that I'm sure nobody wants to talk about, that is what to do if you lose money on an investment. None of us want this to happen. Hopefully you've never experienced this, but I promise you, you will in some way. It can be humbling. It's no fun for anybody. But we're going to talk about what to do in this episode, so stay tuned. Welcome to the Passive Income MD Podcast, where we talk about creating your ideal life through multiple streams of income. If you enjoy hearing about this stuff, make sure to hit subscribe. Now, let's get on the show. All right, this week we're going to talk about a topic that I'm sure a lot of us try to avoid. It's the big dreaded L, the loss, the losing money aspect. I mean, again, it's something that all of us have experienced at some point in our investing careers, if we've been doing it enough or long enough or doing some significant enough investments and trying to make things happen. And it can be absolutely humbling. But I've been there before. I know that I've had losses. I know that I will have losses in the future. But how can you mitigate those and how can you think about those so that you can prepare yourself for the future to really minimize those risks, to maximize those gains and do the best possible moving forward to help you get closer to your goals? So in this episode, we're gonna talk about some strategies around it to try to avoid these things, but if they do happen, the mindset around it and how to utilize that situation to help you in the future, to avoid future losses that. Now, I wanna thank you for joining us wherever you're tuning in from. I'm here in Southern California. I don't know what part of the world you're in, but I hope that you're somewhere where you're surrounded by people you love, doing the things you love, and you're able to create your ideal life, or at least you're moving in that direction. I think one of the keys is not necessarily having everything you want at all times. It's moving towards that goal. Feeling like you're at least making progress, that creates a lot of joy, that creates motivation and excitement in our lives. It's more of the process of. Of getting towards that goal than necessarily that goal. Because how many of us have been in that situation where we've gotten a goal, whether it's like getting into med School, getting that residency, buying that car, and then at some point, that joy wears off. I find that if you don't have another goal to follow that up with, that motivates you. That gets you pushing forward. That's when you start settling into a blah stage where life seems kind of boring or it doesn't seem like what you're. You don't have your purpose, or it's not exciting. And I will say that's one of the things I love about investing. As long as you continue to be in the game, you're always gonna continue to learn. You're gonna continue meet new people, get connected to new opportunities, and that's what's exciting about investing for me. I remember when I was a fellow in OB anesthesia, I focused mostly on epidural spinal C sections, everything around babies. I love it. Such a happy time. I remember my focus was to learn how to do epidurals extremely well and how to manage these things in tough situations. And I remember talking to an attending, and attending had asked me if I ever had a wet tap. Now, for those of you who are not in that world, you may have remembered or heard of a wet tap that's just an inadvertent dural puncture. You go a little bit too far with your epidural needle. Most of the time, it's nothing that's significant in terms of injury can lead to more dangerous things, obviously a lot of discomfort and some things that we really don't want. So we want to avoid it at all costs. But I remember him asking me if I ever had a wet tap at that point. I remember being able to proudly say, I've never had one before. I remember expecting him to say something to effect of, oh, you're awesome, or you're great. But he really. He just said this. He said, well, that's just because you haven't done enough yet. And I remember always remembering that, which told me that as long as you take enough risks and you do it and you stay in the game long enough, losses will happen and they'll occur. Especially when it comes to investments and finances. It's impossible to time the market. There's volatility, there's ups and downs, and so there are ways to mitigate that. But we all know they're coming. We just hope that there's a lot less of them and a lot more wins. And we hope that it doesn't happen early in our careers. But I promise you, at some point they will happen to you, and I'll talk About a few of the losses I've had. I know I've done it. In a previous podcast there was investment I made in a kind of strip mall office space situation and one of the large tenants had moved out and they weren't able to find a replacement. The lender, it didn't need a lot of their qualifications so they actually tried to take the property back or force a sale. And I remember that property had been going on for many years and we did suffer, I think a 30 to 35% capital or equity loss. Luckily I had a small amount of money in it. I think it was 5 or $10,000. I remember that was one of my early investments. And I remember trying to figure out why did this happen? Who was it? Was it the sponsor? Was it the situation? Was it the market? Was it the environment? Was it just bad luck? And I remember in that process of learning, in the process of trying to discover what the loss was about, I learned so much about the due diligence process. Admittedly, when I started into that investment, I didn't know what was going on. It was one of my very first early passive real estate investments. And I invested because it sounded good, it looked good on the pro forma, it looked good on the presentation. The returns seem really attractive. And so I went for it. Of course it's shown me that necessarily reality doesn't always occur and that you have to do better due diligence on the front end to try to figure out where the risks are to try to avoid in the future. And I just learned a ton from that process. Hey everyone, have a quick question for you. Are you looking for a secure and reliable long term investment strategy? Meet Eckerd Enterprises. It's a family owned and operated firm with over 335 years of experience specializing in US energy and alternative investments. Here at Passive Income MD, you often hear me talk about the need to diversify. One of the safest investment strategies available today are mineral rights. And with Eckerd Enterprises, you can diversify your portfolio. Their team is committed to helping private investors like you and me identify and develop successful diversified portfolios with an average return on investment of over 24% across their portfolios. The Eckerd team is dedicated to helping you build and protect your wealth through long term passive income. All of this while minimizing the risks associated with traditional investments. So check out Eckerd Enterprises if you want that great investment experience, go to eckerd enterprises.com again that's eckerd enterprises.com thanks. And back to the show. But what I also learned was not just strategies, but how to think about it mentally. And again, that wasn't my first loss. I've had other losses where I invested in a real estate company that was using tech to try to disrupt the rental real estate market. I had invested a significant amount of money, six figures in it, thinking this would be like the next Google, Zillow, Redfin or whatever it was. And it seemed like this. And the company was about to go public. They botched the ipo, the bank pulled out the market for these type of investments, started to soften and went from a point where I thought I was going to make a big return on my money pretty quickly to a place where I lost all of it. And again, going through that process where I started learning due diligence. What did I do wrong? I also learned about the mindset because I remember sitting there just really down on myself about this loss and it would keep me up at night actually for a while. This is a lot of money. I don't care what stage you're at the game. We don't want to lose any money, whether it's a small amount or a large amount. But I learned early on that I needed to accept and acknowledge the loss, meaning that I had to recognize that if I'm taking enough risk, if I'm making enough bets, taking enough even calculated guesses or calculated investments in people and different deals and trying to diversify, there are going to be some losses that are a natural part of investing and they're going to happen. So I remember I made a decision, this happened, but how am I going to learn from this and use this moving forward? I didn't start to dwell on it. I even talked about it more with my wife, with other people, and it helped me process it and it helped me to figure out that I need to focus on what I can control. A lot of these investments, sometimes when you do it passively and even actively. I've had where investments where I invested had my own properties and things happen where you can't control fires, tenant issues, environmental issues. I had to focus on what I could control, what I could do moving forward to help me through this. It taught me a lot about risk and identifying and getting in that right mindset to move forward, putting things in the past. It also taught me to have a long term perspective, which I think is healthy for anyone in investing. Obviously, if you are thinking about the short term, trying to make the quick buck, which can happen. People in crypto recently have done quite well, and by their periods is there too through the ups and downs, certain stocks have skyrocketed. I know. But if you have that longer term perspective and you look at the curve or your growth over time, you're going to see blips, but overall you're going to see growth and hopefully exponential growth over time. All markets have ups and downs. Even if you're somebody that thinks they should just invest in index funds. Yes, even those have ups and downs. If you look at it, there are many bear markets that everybody's gotta go through. But if you keep in there for the long term, have that long term mindset, you're gonna see the gains over time. And if you know that one investment will hopefully lead to the next, even if there are mistakes, you'll get better, pick yourself up and be able to have greater gains moving forward by educating yourself, getting informed, constantly learning, surrounding yourself with good people, you know that no loss is truly a loss. You're going to have gained something, at least in terms of knowledge, a better mindset moving forward. Now, trust me, there are those decisions and those investment losses where I've had, where I didn't even know what I was doing, where I just invested money and I just lost it and I wasn't sure what or how to, you know, what went wrong. And afterwards I was scrambling to figure out what I did. That's not the proper way to do it. Ideally, ideally, before you go into an investment, you do your proper due diligence, do as much as you can, and you decide to invest because of these pluses and they're knowing that there are these risks involved. That way, if things turn out a certain way, you know that your hypothesis, your, your due diligence was good or bad, and you can course correct. The ones that I'm most worried about are the ones that you just invested in. You don't know what happened even afterwards. You don't learn from your mistakes and you're doomed to repeat them again. That's what you definitely want to avoid. Okay, so what are the next steps financially? If you have a loss, of course you want to document that. You want to make sure that all the documentation is there for that loss. You want to pass it off to your cpa that will likely count as against your capital gains. And there'll be tax considerations to offset those losses. The good thing is IRS lets you take those losses and offset some of your gains. So some of your gains, you might have had profit from those, but you're at least able to offset it. With this loss and maybe not pay as much taxes. Simply put, let's say you made an investment, you made $50,000, and let's say your effective tax rate is 50%. So maybe out of the 50% profit, normally you pay 25% in taxes. So instead of just having that $50,000 gain where you have to pay taxes, maybe you already had a $50,000 loss, unfortunately, but now you can offset that gain with that loss, which actually creates a situation where you don't have to pay any taxes on those profits. So those losses can go to offset some of the gains and some of the taxes that you would have to owe. So actually helps to minimize, at least soften the blow in terms of some of these losses. I remember hearing from someone at a financial conference saying that as long as you stay in the game, even if you have some losses, those losses will be canceled out by the gains you have in the future. You can roll those forward, make use of it, creating a snowball effect, and ultimately magnified returns for yourself moving forward. You just have to stay in the game. Then also what you want to do is you want to uplevel your financial knowledge. Now some things are out of your control, but maybe there was a way that you could have seen some of the risk involved. Maybe there's some better questions you could have asked. Maybe you could have diversified better. Maybe you could have actually utilized that money and maybe put in a different investment in a similar class. Maybe you could have invested in a way that was a little bit more tax efficient or better for your estate planning. There are so many things that you can learn from that investment, whether it's a win and especially when it's a loss, that can help you make better decisions moving forward. So to bring it around, where that loss, where I had the six figure loss on that investment, where I thought it was a real estate winner, I know that that was a loss of church capital. But I met some key people that later on that I ended up partnering with on some other deals that made me a decent amount of cash on that one to help offset that loss and more. So it's funny how things can turn around, how you can turn lemons into lemonade, how you can take losses and to create future gains, how you can. Again, the key is to stay in the game, to continue to educate yourself, move forward, learn to mitigate risk better, and just be a better investor in the future. Now for the big tip for those who stay to the end of the podcast, the big tip is try not to make all the mistakes yourself. Try to learn from other people's mistakes first and that can help you and save you a lot of headache when it comes to your wallet and your bank account. Surround yourself with people that are talking about their investments, that are willing to be transparent about the losses that they've had. You can find that in our own community through Passive Income Docs through Passive Real Estate Academy, our impressive real estate investment course in the community. There that we have an investment club. You just talk to people like that, Surround yourself with the community, learn from the losses of others, and we'll all get smarter together moving forward. Make less mistakes and hopefully have bigger gains. Thanks for listening to this podcast. As always, feel free to share it with other people. Leave us a nice review. If this has added value to you in some way, I really appreciate that. Have an amazing day, have an amazing week and let's talk again soon. Thanks. Enjoy the show. Let me know by dropping a review in the podcast app you're listening to us at. And if you haven't already, be sure to hit subscribe. Join thousands of physicians who are also on this journey to creating their ideal lives through multiple streams of income. Learn more at our website, passiveincomemd.com thanks again for allowing me to be a part of your journey. See you next time.