Jasmine Birtles
Your money-making expert. Financial journalist, TV and radio personality.
Can You Lose Money in The Stock Market? The Odds Revealed!
Ruby Layram
9th Jan 2025
The age-old question: Can you lose money in the stock market?
We recently conducted a survey which revealed that the biggest reason that people don’t start investing is because they are afraid of losing all of the money that they invest. And for a good reason! The stock market can be unpredictable (even in the best of times), which makes it a pretty daunting place to put your money.
Not to mention, a lot of online publications (including us), regularly warn about the risk of losing money to make sure that investors understand the risks that come with investing. This can make it seem like investing is a zero-sum game in which you are destined to lose!
But, is that really the case?
In this post, I will explore some interesting data that explains the real risk of losing money in the stock market. I also share some top tips for minimizing the risks involved so that you can take that crucial first step today.
Understanding Stock Market Risks
Investing in the stock market inherently involves risk (sorry to break it to you!)
Stock prices fluctuate due to various factors, including company performance, economic indicators, and geopolitical events. These fluctuations can lead to gains or losses in your investment portfolio.
For instance, consider the tech boom and bust cycles. Companies like Intel have experienced significant market value losses in certain years, impacting investors’ portfolios.
In one recent year, just 10 S&P 500 companies, including Intel, Nike, and Boeing, lost a combined $383.2 billion in market value!
It’s essential to recognize that while the stock market has historically trended upward over the long term, short-term volatility can result in losses.
Understanding this volatility and preparing for it is crucial for any investor.
FTSE 100 performance over time. Source: The Guardian
The Odds of Losing Money
So, what are the actual odds of losing money in the stock market?
While precise statistics can vary, it’s acknowledged that a significant number of investors may experience losses at some point during their investing journey, especially those who engage in short-term trading without adequate research or strategy.
For example, during market corrections, (which have occurred 24 times since World War II!), the average market drop is about 14.3%.
These drops can lead to losses, particularly for those who panic and sell during the decline.
However, it’s important to note that these corrections are typically temporary. Which is good news for long term investors!
Investors who stick with it for the long run and avoid making impulsive decisions during market downturns are more likely to recover and achieve positive returns over time.
FTSE 100: A Case Study
Let’s take a closer look at the FTSE 100 , the UK’s leading stock market index, to understand the potential for both gains and losses.
Over the past two decades, the FTSE 100 has demonstrated resilience and growth.
From 2003 to 2023, the FTSE 100 delivered a total shareholder return of 241%, averaging an annualized return of 6.3%, including dividends (according to IG).
This performance highlights the potential for substantial gains over the long term.
However, it’s also important to acknowledge that the FTSE 100 has experienced years of negative returns within this timeframe.
For instance, during the global financial crisis in 2008, the index suffered significant losses. If you had panic-sold during this time, you would have missed out on returns that happened afterwards.
This shows the importance of a long-term investment strategy and the ability to steer clear of panic selling.
Tips to Minimize Risk
While it’s impossible to eliminate risk entirely, there are strategies to reduce it:
- Diversify your portfolio: Don’t put all your eggs in one basket! Spread your investments across different types of asset to reduce exposure to any single investment’s poor performance. We like ETFs for this!
- Invest for the long term: Time in the market often beats timing the market. A long-term approach can help smooth out short-term volatility. Leave short term trading for the pros!
- Stay informed: Keep on top of market trends (our investing newsletter is great for this!), economic indicators, and company performance to make informed decisions.
- Avoid emotional decisions: Fear and greed can drive poor investment choices. Stick to your investment strategy and avoid making impulsive decisions based on market fluctuations.
- Talk to an expert: Financial advisors can provide personalized advice tailored to your financial goals and risk tolerance.If you’re thinking of putting a lot of money in the line, consider investing in an hour or two with an advisor who can answer any questions that you might have.
Overcoming the Fear of Investing
It’s natural to feel apprehensive about investing, especially when there is a chance that the value of your investment could do down.
Here are some steps to build confidence and take that first crucial step:
- Educate yourself: Knowledge is power. Understanding how the stock market works can demystify the process and reduce fear. After all, there is nothing scarier than the unknown!
- Start small: Begin with a small investment to gain experience without risking too much money. Platforms such as eToro allow you to start with just $10.
- Set clear goals: Having clear goals will help you to make informed investing decisions and stay motivated. Before you put any money in the stock market, get clear about your goals.
- Join investing communities: Engaging with fellow investors can provide support, insights, and shared experiences. You can start by commenting in our forum or joining the MoneyMagpie Facebook group!
Yes, you can lose money in the stock market. However, by understanding the risks, knowing the odds, and implementing strategies to reduce potential losses, you can position yourself for success.
Remember, investing is a journey that requires patience, education, and a long-term plan. It’s about holding on, even through rough patches, and trusting that the market will correct itself.
Nevertheless, only invest money that you can afford to lose. Also, make sure to have 3-6 months of life expenses saved up before you enter the stock market!
Are you interested in learning more about investing? Why not sign up to the MoneyMagpie bi-weekly Investing Newsletter? It’s free and you can unsubscribe at any time if you find it isn’t for you.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. When investing your capital is at risk.
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