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Home » Investing » Stocks » You Won’t Lose All Your Money Investing (If You Take This Advice)

You Won’t Lose All Your Money Investing (If You Take This Advice)

Updated: March 23, 2020 By Robert Farrington

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Don't let the fear of losing money in the stock market hold you back from investing.I’m a big believer in starting to invest early. It’s one of the smartest ways to build wealth. But when I talk to millennials, fear is holding them back from starting to invest.

The #1 fear I hear almost every week is this: I’m afraid to start investing because I’m afraid of losing all my money.

My biggest fear right now that is holding me back from investing is the possibility of losing the little money that I have. – Aileen G.

I’ve talked myself out of just starting numerous times because of [the fear of losing money]. – Jared L.

My biggest fear is losing my investment. I have very little to start with and am afraid of making a wrong move. – Jennifer P.

As you can see, people are afraid of losing money investing. And that’s valid – you CAN lose money investing. But to lose all your money? That’s pretty rare and hard to do, especially if you’re focused on investing versus trading.

Losing All Your Money Investing Is Hard To Do

The first thing to know about investing is that you can lose money. It’s as simple as that. You could invest today and see your portfolio drop tomorrow. But to lose everything? That is really hard to do.

In the worst stock market crash during the Great Depression, the stock market lost 89% of it’s value. In the most recent stock market crash in 2008-2009, the stock market lost 54% of it’s value from market top to market bottom. While both of these are huge drops, it’s important to remember three things:

1. In both cases the stock market didn’t go to $0. Meaning if you invested in the total market, you wouldn’t have lost everything.

2. In both cases, the stock market returned to the pre-crash level years later. Yes, year later, but it bounced back.

3. Both of these events (and almost all market events) happen over time. These huge drops didn’t happen in one day. Yes, there were some 10% or more days, but that return is over the course of about a year. Meaning, you could have sold your positions and lost much less money.

The point is, you have to be completely amiss to lose all your money investing. You have history, time, and strategy all on your side to avoid losing money when investing.

Strategies To Protect Yourself And Your Money

Even though you have the facts about losing your money, the horror stories always stand out. In every instance where you’ve heard about someone losing all their money, it was because they didn’t have a strategy or follow some common sense strategies.

Here are the key strategies to protect yourself and your money:

1. Keep An Emergency Fund In Cash

The first thing to make sure you have in place to protect yourself is an emergency fund in CASH. This should be enough money to cover 6-12 months of your expenses, and it shouldn’t be invested in stocks or the stock market. The reason? If the stock market does crash and you lose 50% of your portfolio, your 6 month emergency fund just became a 3 month emergency fund. Not a good idea.

This is just cash to protect yourself. I know it’s frustrating to have a pile of money sitting there and not earning anything more than interest, but think of it like an insurance policy that doesn’t cost you. It is there to protect you should you need it.

2. Maintain A Diversified Portfolio That Matches Your Correct Allocation

Second, you need to make sure that you have a diversified portfolio. This means holding different stocks and bonds in different industries or areas. When events happen, it’s possible that individual companies and even sectors suffer. For example, if you owned Enron stock, that company did go bankrupt and it’s stock went to $0. However, the entire stock market didn’t, and even other energy companies didn’t. It was just one company. But for the people that held 100% of their investments in Enron, they lost everything. That’s why you diversify!

How do you diversify? You create an asset allocation that matches your needs, and then you build a portfolio around it. It sounds complex, but it isn’t. All it means is picking investments that make sense for you, and are made of up a bunch of different things that aren’t related.

3. Monitor Your Positions

Next, you need to monitor your investment positions and follow what’s happening in the stock market. You don’t need to do this everyday, but you should do it often enough so that you know what’s happening with your money.

I recommend that you look at your investments at least weekly, to see how they are performing. If you have a good asset allocation and feel comfortable with the strategy behind it, then you likely only need to trade positions every six months to one year.

If you don’t have a good system to track your investments, look at a free tool like Personal Capital. They keep a dashboard of all your investment accounts in one place, so you can always see how they are performing. And it’s free!

4. When Uncomfortable, Seek Advice

Finally, if you’re uncomfortable with your investment performance, consider seeking out professional investment advice. You can talk to a fee-based financial planner, as they will have no vested interested in the investments you have other than to help you navigate and be successful. If your investments give you an uneasy feeling, this could be a great investment!

What do you think about protecting yourself from losing it all?

Robert Farrington
Robert Farrington

Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.

He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.

He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.

Editorial Disclaimer: Opinions expressed here are author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, or other advertiser and have not been reviewed, approved or otherwise endorsed by any of these entities.
Comment Policy: We invite readers to respond with questions or comments. Comments may be held for moderation and are subject to approval. Comments are solely the opinions of their authors'. The responses in the comments below are not provided or commissioned by any advertiser. Responses have not been reviewed, approved or otherwise endorsed by any company. It is not anyone's responsibility to ensure all posts and/or questions are answered.
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