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Are you afraid of losing all your investments

Are you afraid of losing all your investments

December 17, 2021

Fear of losing money is a real challenge for investors, writes Peter Watson.

There is a strong element of fear when it comes to investing.

If your entire portfolio is invested in one or two stocks, then the risk of losing most or all of your money should be a significant concern.

Many investors today understand the advantages of owning an extremely well-balanced diversified portfolio that includes stocks in different industries and different countries.

Historically stocks have performed very well. The S&P 500 index represents the value of 500 large publicly traded companies in the US. The average annual return is close to 10 per cent annually since it was established close to a century ago.

The worst one-year decline was 43 per cent. The index lost value one out of every four years. It gained value three out of every four years.

That is a fairly positive outcome. Regardless, investor fear can be magnified for many reasons.

Investors are more discouraged by losing than they are pleased by an equal amount of a gain. When someone experiences a financial loss because their portfolio declined in value, they will often start thinking that stocks are too risky.

The stock market might reverse and post monthly gains to their holdings but still that negative perception can persist.

Fear is a real part of investing. Understanding your own temperament can be a good guide when you invest in 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 –