Oprah once featured a story of Rob and Jane, a newlywed couple with bright futures ahead of them who ended up in a financially devastating position. 

Jane recounts their story:

"In a lot of ways, Rob's and my relationship was fairly common. We met through mutual friends and started dating. He was smart and witty; and, while I tended to hang out with professional writers for whom funny and articulate were the norm, Rob was a law student with those attributes. I was charmed, and we got married.

As with many couples, one of us was the saver (me) and the other was the spender (Rob). I was raised by parents who were conservative about money, and grew into a very budget-minded adult. Rob, on the other hand, was an only child who never learned to be responsible with money. I became a writer, and he finished school and got a job at a corporate law firm. Despite our opposite upbringings, though, I wouldn't have called us a couple with large-scale money problems."

But, over the course of several years, Rob had secretly been investing the proceeds from the sale of their apartment into the stock market. But, he wasn't using long-term, buy-and-hold strategies like most financial advisors would recommend.

No, instead, he was taking massive bets on individual stocks — hoping he could pick the few winners among the thousands of publicly traded companies.

And Jane had no idea until one day when she deposited a check at the bank: 

"I went to the bank to deposit the check, and the teller mentioned that we were going to start incurring fees because of our low balance. Surprised, I asked, "How low is it?" He responded: "Fifty-two dollars.

I assumed there must have been some sort of mix-up. Only fifty-two dollars? That was impossible; we had hundreds of thousands of dollars from the sale of our apartment...didn't we?"

Jane goes on:

"When Rob returned from his weekend away, I told him about what I learned at the bank, and he acted just as confused as I felt. He put his coat on and said, "I'm going to the bank to figure it out." Two minutes later, he came back. "There's not a problem with the account," he told me. "I lost the money. I've been investing it and had been doing really well for awhile. But I started making riskier and riskier investments, and...I lost all of it."

From hundreds of thousands to just $52, Rob had lost their entire life savings gambling in the stock market behind Jane's back.

If this story sounds familiar, you're not alone. You can find hundreds of stories just like Rob and Jane's with outsized risk, financial infidelity, and staggering losses. These stories are much more prevalent in the crypto market as well, which many consider to be the wild wild west of exchanges. 

But if you've experienced something similar, the good news is that there is always hope, and there are practical steps you can take to bounce back from a financial setback.

“While the stock market is typically not a dangerous place for investors who decide to invest into blue chip stocks, which are the market leaders and only fluctuate around a small percentage, it can become quite dangerous when you enter into the landscape of penny stocks,” said Leonard Kim of AdvisorCheck. “Penny stocks are stocks that trade for under $5 and many people get excited, thinking that a stock like this could become the next Apple or Microsoft. The bad news is that many of these stocks end up going the opposite direction. The same holds true for more volatile markets like crypto, especially when you are looking at alt coins,” Leonard continued. 

To lose hundreds of thousands of dollars in the market and to be left with $52 would typically not happen from just investing in penny stocks alone. What usually causes a significant loss like this is when people move from a passive to an active role in managing their portfolio.

“Some situations that could lead to losses this significant could be due to a company completely losing liquidity, but more often than not, it is when someone either decides to day trade, which could lead to significant daily losses that are moved from one trade to the next with a compounding effect,” stated Leonard from AdvisorCheck. Another situation where this could arise is when people start experimenting with options, which could leave the investor with a 100% loss if they let their contract fully expire, “Leonard continued.

First, You Must Assess The Damage.

The first step towards recovery is to assess the damage.

Take a deep breath and analyze the situation. This will help you gain clarity and perspective. 

Focus on answering these three questions:

1. How much of your life savings were invested?
2. What is the current value?
3. How much have you lost?

By answering these three questions, you can gain clarity around your financial situation and determine the steps you need to take to bounce back.

Second, Consider Whether To Sell Or Hold Onto The Stock.

Once you're clear about how much you've lost so far, it's time to make a key decision: keep holding the stock, or sell it and move on.

If you decide to hold the stock, you're embracing two possibilities: (1) the stock keeps going down, and you lose more, or (2) the stock recovers, and you gain some back. 

Unfortunately, it's impossible to say which way the stock will go.

But if you sell, you are locking in your losses for good. So again, if the stock continues going down after you sell, you did yourself a favor by limiting losses, but if the stock recovers, you will have missed out on the recovery.

Unfortunately, there's no surefire way to decide whether to hold or sell the stock, so it can be powerful to consider consulting a financial professional as you decide which way to go. 

A financial professional can evaluate the long-term performance of your chosen stock and advise you on whether holding it would be a wiser financial choice than selling. In addition, a financial professional will be able to help you zoom out and understand the impact this decision will make on your overall financial picture, which can be a critical aspect when deciding whether to hold or sell.

Regardless of your choice, it's important to remember that investing in individual stocks is unpredictable, and things can change quickly. No one knows how the market will turn, so you must remain aware of potential risks and make decisions accordingly.

Third, Brainstorm Ways To Recover Your Losses.

While you can’t go back and undo what’s already been done, you can focus on ways to recover moving forward.

For example, if this financial setback has robbed you of all or most of your retirement savings, it’s time to focus on building that back up. So while the standard financial advice may be to target savings of 10 to 20% of your income for retirement, you might consider ramping that up to 30% to 40% for some time as you rebuild.

Or, you and your spouse may consider other ways to recover your losses, like picking up a side hustle on nights and weekends to increase your income and savings rate. In addition, to really accelerate your recovery, consider the power of slicing both ways, ramping up your income while cutting back your expenses. Remember, this doesn't have to be your new normal, but it may be prudent planning for some time as you work to recover from this unfortunate setback. 

Whatever the case, consider sitting down with your spouse to brainstorm different ways to accelerate your recovery, and don’t be afraid to go with the best solutions for the two of you, even if they seem outside the norm.

Fourth, Reassess Your Financial Future.

You’ve experienced a significant financial setback, ultimately changing your financial future.

So while you may have planned to achieve early retirement and exit the rat race before the age of 60, you may need to reassess whether that’s still doable. Sit down and crunch the numbers again with your new financial situation. 

Take a look at your overall net worth—how much has this setback affected your financial health?

If it has had a significant impact, then it’s likely you may need to consider some significant plan changes. 

As you reassess, pay particular attention to your target retirement age. Fortunately, each year you decide to delay retirement has two powerful effects: (1) it gives you another year to save, and (2) it delays drawing down on your portfolio. Combined, these two effects could give you the boost you need to get back on track for the future by simply shifting your retirement age back a few years. 

And if you’re having trouble understanding the total impact this setback has had on your financial future, consider the last tip.

Fifth, Seek professional advice.

Money and your overall financial situation can be complicated enough as it is. But throw in a devastating financial setback and staggering investment losses, and it may be wise to consider enlisting the help of a professional.

Fortunately, there are hundreds of thousands of professional financial advisors who can help you get an overall understanding of your financial health, quantify the impact of this setback, and help you design a unique plan to get you back on track. In addition, a financial advisor can help you understand if there are any upsides to this financial setback, like the possibility of using your capital losses to offset capital gains in future years, saving you money on your future tax bills. 

And don’t worry, you’re likely not the first person they’ve helped navigate these types of losses, and you won’t be the last.

In the end, remember, we all make mistakes. 

It's a part of life. But what really counts is how we respond to those mistakes. So, instead of dwelling on the negatives, it's important to focus on the positives. Think of mistakes as opportunities to learn and grow. By taking some time to reflect on what went wrong, you can gain valuable insights that can help you and your spouse avoid making the same mistakes in the future. So, the next time you stumble, don't beat yourself up. Instead, take a deep breath and use the experience as a chance to become a better, stronger, and more resilient person.

All in all, assessing the damage, considering whether to sell or hold onto the stock, brainstorming options to recoup your losses, reevaluating your financial future, seeking professional advice, and focusing on the positives are key elements to consider when dealing with investment losses.

And If you want the help of a pro but don’t have a financial advisor yet, we urge you to take advantage of our free AdvisorCheck membership. Our experts have done the research for you, and our proprietary system will give you access to the most relevant information and resources you need to find the right financial advisor for your needs.

With your free membership, you will not only get access to the best financial resources possible to make sure you are on track, but you can also search for a CERTIFIED FINANCIAL PLANNER™ professional (CFP®) in your area who takes a holistic approach to personal finance with our database of over 1 million US Financial Advisors. This will put you on the path toward securing your financial security now and in the future. Not to mention, you can compare your financial advisors with others and monitor also monitor them throughout your working relationship.

Written by Anders Skagerberg, CFP®

Fact checked by Billy Quirk

Reviewed by KJ Kim

Disclosure

The information provided in this article was written by the research and analysis team at AdvisorCheck.com to help all consumers in their financial journeys, by providing the resources and the insights to help improve one’s financial health, make it through recessionary and inflationary periods of time, and save their earnings to use them towards building a secure financial future. 

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