MythBuster: I’ll Lose Money When I Invest
I think the number one fear keeping most of our clients on the sidelines is the fear of losing their money if they invest it. We work hard for every dollar we make, so it would make sense that you’d want to protect it; however, being overly cautious with your money also means that your money is actually losing value more by not investing than investing.
What do I mean?
If your cash is sitting in a checking account or savings account now, the most it could earn is 1.00% or somewhere around there. Inflation in the U.S. is currently around 2-3%, which means your money is worth 1-2% less every day you keep your money in the bank account.
What about losing money investing?
When you invest, you buy a certain amount of something, typically shares of a company, or an ETF or a mutual fund at a certain price. After you buy those shares, you always have the same amount of shares, unless you sell or buy more; however, the price for them will change. You could buy 10 shares of Apple at $157, pay $1,570 and this represents your starting value of this investment. Two weeks later Apple could release a crappy version of their i-Phone and now the price of one share could equal $130; which means your Apple ownership is now worth $1,300.
If you look at your investment portfolio that day, it will look and seem like you lost money on your investment ($270 to be exact); however, what you’ll see is called an “unrealized lost.” It means that you haven’t really lost anything yet, the only way you’d lose in this moment is if you need to sell your Apple shares at which point it becomes a “realized lost.” If you hold onto your 10 shares, though, Apple could recover, create something fabulous and now one share could be worth $200; and your initial investment of 10 shares at $1,570 is worth to $2,000.
The stock market will always go up and down like a rollercoaster, that’s what it’s supposed to do. As long as you plan your ride and make sure that you have money available when you need it, you should be able to realize more gains than losses over time. You only truly lose money when you sell your investment for a loss. If you’ve planned your money right and can wait to sell when the rollercoaster goes back up again, then you’ll not only make money over time, but you’ll have a lot less stress about investing and worrying about losing your money.