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Invest in Stocks – Prepare to Lose

Invest in Stocks – Prepare to Lose

July 23, 2021

There will be a time when you lose money. That is a certainty.

The assumption is based on a broadly diversified portfolio versus owning just a few stocks. Information is taken from the S&P 500, a US stock index.

Yes, some years you win when your stock portfolio increases in value. Winning is easy. Anyone can handle a victory.

Losing is different. Significantly different. That is where courage is needed.

At a recent webinar, one chart showed the sudden decline of stock values after COVID-19 invaded North America. In round numbers, many investors lost about one third of the value of their stocks.

Then suddenly, the market had a full rebound and went on to post significant gains. Again, in round numbers, the portfolio was up about one third higher than before the pandemic.

The next chart showed how devastating the stock market decline was for so many investors. As the market declined, many investors sold and kept selling even after the markets started to rebound and go on to post new highs.

Those investors lost money and did not recover those losses when the rebound occurred.

Panic selling is far too common.

Humans are not hardwired to accept financial losses. We know from research, and our own experience, that a stock market decline in value is significantly more difficult to tolerate than the pleasure of an increase in value of the same magnitude.

History shows us that you will lose money if you own stocks. Those that were able to resist the temptation of selling at a loss were rewarded.

That is not a guarantee but based on past decades of history it is a certainty.

It takes courage to own stocks.

Peter Watson is registered with Aligned Capital Partners Inc. (ACPI) to provide investment advice. Investment products are provided by ACPI. ACPI is a member of the Investment Industry Regulatory Organization of Canada. The opinions expressed are those of the author and not necessarily those of ACPI. Peter Watson provides wealth management services through Watson Investments.