A drop in value isn’t a locked-in loss
The Sterling Report
IN times of uncertainty, it’s natural to feel a little uneasy when you check your investment portfolio and see a dip in value. Headlines may be alarming, markets may be choppy, and it might feel like your hard-earned money is disappearing. But before you make any sudden moves, it’s important to remember one key principle: you don’t lock in a loss unless you sell.
This is especially true when it comes to bonds and mutual funds. The market value of these instruments can fluctuate from day to day based on interest rate movements, investor sentiment, and global headlines. But that daily price doesn’t always reflect the true long-term value of your investment — especially if you’re earning regular income from it and have no plans to sell any time soon.
Take bonds, for instance. If you hold an individual bond to maturity, you’ll receive back the full face value, plus the interest earned over time — provided the issuer does not default. That last part is critical. It’s important to make sure the price dip is due to general market movements, such as rising interest rates or global economic jitters, and not a sign of deeper trouble. A falling bond price may simply reflect temporary shifts in market sentiment, but it can also indicate a change in the fundamentals of the issuer. If the company or government issuing the bond is showing signs of financial distress, that’s a different story — and one that calls for closer examination.
Similarly, if you’re invested in a bond mutual fund that does not pay out income, its goal is typically long-term growth through reinvested returns and gradual price appreciation. While the fund’s market value may fluctuate in the short term — especially in periods of rising interest rates— those changes don’t reflect a realised loss unless you sell. Over time, as market conditions shift and bonds mature or recover in value, the fund may regain lost ground. Reacting too quickly to a downturn could mean missing the opportunity to benefit from future recovery and compound growth.
Selling during a market pullback turns what may be a temporary paper loss into a real, permanent one. Too often, investors panic and sell at the bottom, missing out on the rebound that tends to follow. History has shown that markets, including bond markets, often recover, especially when investors remain patient and focused on their long-term goals.
So, what should you do if the market value of your investment has fallen?
• First, stay calm and don’t rush to sell.
• Second, assess whether the decline is market-driven or investment-specific.
• Third, talk to your advisor. They can help you determine whether to hold, rebalance, or make a strategic move.
The bottom line? Volatility is temporary. A long-term strategy is powerful. Stay the course.
Toni-Ann Neita Elliott, CFP is the Vice President, Sales & Marketing at Sterling Asset Management. Sterling provides financial advice and instruments in U.S. dollars and other hard currencies to the corporate, individual and institutional investor. Visit our website at www.sterling.com.jm
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