I mean that both literally and perhaps not so literally. There will be time when market value will decline and your gain will be negative. There will also be times when you want to sell a loser, and have a good reason. The hope is that overall your stock portfolio will gain, in time, much more than any other investment would gain.
So short term, you could lose. Long term you will gain.
Why Do I Want To Invest When I Could Lose Money?
Overall in the last three years, I have gained much more in my stock holdings than I would have if I had invested in a straight S&P index fund. Not all of my holdings made money. Some had lost a bit, some had gained a bit. In fact, my big gainers were probably only half of my portfolio.
Sometimes I traded out of a stock to get a better return. Sometimes I decided that I would hang in there a while longer. The market may decide I picked the wrong stock, but I had not made up my mind yet.
How Much Money Can Be Made?
Good question. As I have gone on, I have seen the potential to out gain the S&P 500 by 6 or 7 times. There may be better and worse years ahead but right now it looks pretty good. No, you aren’t doubling your money every year, but you also aren’t making bank interest rates.
Note that a big return of 50%, which I believe is certainly possible, more than doubles your money every two years. Wouldn’t that be nice?
How Much Money Is At Risk?
Generally with stock in 10 companies, actual risk is reasonable. It is very unlikely that all of your money would be lost in the worst of markets. But there are probably years where you will lose market value. It is part of the game you can’t get away from.
In my opinion, you don’t lose money until you sell a down stock or until a company goes bankrupt.
I Hear That The Stock Market Is Only Going Up
Obviously this is not true. The market will go down. Perhaps not today or tomorrow, but it will go down.
If you aren’t mentally prepared to take it on the chin, you will panic and do things you shouldn’t. Be ready and embrace the roller coaster.
A Tale Of Home Values
The great thing about owning a home is that you don’t care what it is worth on a day to day basis. The value may go down, it may go up. Either way, you are probably saving money over renting. In the long run, you mostly know that your home value will go up.
This is also true of a basket of stocks. You don’t abandon your home because it loses $10,000 in the real estate market. You might if you find something seriously wrong, or if it becomes too big or too small for you. Apply the same principle to your 10 stocks.
More Reading:
- Why Rental Properties Are Not Good Investments – Industry Insights
- Sorry, But Your Home Isn’t An Investment – The Simple Dollar
- 10 Ways To Lose Money In The Stock Market You Should Avoid – The College Investor
- Market Capitalization Meaning: Why Price Doesn’t Always Equal Value – Rule One Investing
- Marriage or mortgage? Financially speaking, there’s a clear winner – BankRate