Will I lose money in the stock market? | Market conditions

Will I lose money in the stock market?

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    In our experience, one of the biggest barriers for clients looking to invest in the stock market is that they perceive it to be like a casino. But, in fact, it’s a far safer bet if you adopt the right strategy.

    Any investment carries risks, but historically, stock markets have shown long-term growth. While it can seem volatile over the short term, by diversifying your investments and adopting a long-term strategy, you can mitigate the risks and increase the likelihood of positive returns.

    It’s a fact that the US stock market has increased by around 10% a year since 1928. So, if you had invested £10,000 in 1988, the stock price would be £319,478 today. If that comes as a surprise, please read Heritage Financial Planning’s guide on how likely it is to lose money on the stock market and our advice on mitigating the risk and maximising your investment.

    At Heritage, we help many individuals in the UK to start investing in stocks with independent and impartial advice. To arrange a consultation with one of our highly-qualified team, please do not hesitate to contact us.

    What are the main concerns about investing in the stock market?

    During my years as an independent financial adviser, I’ve come to two main conclusions about why my clients are hesitant to consider stocks as suitable investments.

    Firstly, due to the inherently volatile market conditions over the short term, causing stock prices to drop. We can see evidence of this in the stock market declines going back to WW2 in the US (Source: Ben Carlson). 

    What is the probability of losing money in the stock market?

    Consider this research paper based on data from the US stock market from 1963-2011. It looks at stock returns over various rolling periods from 1-20 years.

    To summarise the findings, for holding periods of up to a year, the possibility that investors lose money is a third of the time. But over a 20-year investment horizon, the chance of a loss was eradicated. Little wonder that so many uninformed investors lose money over the short term and conclude the game must be rigged!

    How long should you be prepared to invest in the stock market?

    As we can see, the chance of a negative return declines dramatically the longer you hold stocks.

    This got me thinking – over different rolling time periods, what would be the highest, average and lowest rate of return had you invested in the US stock market (S&P 500) since 1972?

    The results speak for themselves.

    Stock market rolling period

    Even if you had been the most unfortunate of investors, you would still see a positive return after 10 years (not accounting for inflation).

    This period covers some pretty awful periods and stock market crash, such as the oil crisis of the 1970s, the US leaving the gold standard, the dot com crash and the banking crisis of 2008. 

    So, to capture the headline market returns and build wealth over time, you must be prepared for the inevitable periods of pain and bear markets. Sure, you may be able to time a correction and move to cash – but this is extremely difficult, and to time it consistently over a 30-year investment horizon, I would argue, is impossible, even for professional investors.

    If you are invested in the stock market, you should be prepared to be invested for at least a decade or a number of decades. As Warren Buffet said,

    “Our favorite holding period is forever”.

    What if you are in retirement or seek less risk?

    For those closer to or in retirement, wealth preservation rather than wealth creation may be a priority. Therefore, a 100% equity portfolio may not be appropriate. 

    This prompted me to look at data for a more conservative portfolio made up of 60% stocks and 40% bonds, traditionally known as a 60:40 portfolio. 

    The results are striking when compared to the 100% equity portfolio over the same period. A more diversified portfolio dramatically reduced the chances and severity of a loss during a bear market. 

    Had you invested for over 5 years during any of these rolling periods, your chance of a loss reduced to 0%.

    100% equity portfolio  

    100% equity portfolio

    Source: Portfolio Visualizer 

    60:40 portfolio 

    What is a 60:40 portfolio?

    A 60:40 portfolio (between stocks and fixed-income investments) is a very common investment strategy amongst UK investors. The asset allocation is based on modern portfolio theory (MPT), which optimises the mix of assets based on their expected returns, volatility, and correlation with one another.

    In a 60:40 portfolio, the allocation to stocks provides the potential for long-term capital growth, but it also comes with a higher level of risk. This is because stocks are more volatile and subject to fluctuations in the market, which can lead to significant losses in the short term. However, over the long term, stocks tend to outperform fixed-income investments, making them an important part of any diversified investment portfolio.

    Fixed-income investments are typically less volatile than stocks and provide a more predictable income stream. Traditionally they have acted as ballast during periods of extreme market stress as investors flock to the security of fixed income. However, this did not occur in 2022, as fixed income was one of the worst-performing asset classes, and the correlation to equities broke down.

    Get in touch with Heritage Financial Planning for investment advice

    The stock market can be an unnerving place if you don’t have the right advice, especially if you are approaching retirement or simply don’t have the appetite for risk.

    At Heritage, we completely understand the concerns that many people have about investing in stocks and are here to provide impartial advice based on each client’s individual circumstances and goals.

    Our only motivation is to help our clients achieve the best return on their investment. We simply wouldn’t recommend an investment we weren’t prepared to make with our own money.

    To arrange a free initial consultation, please fill in our contact form.

    FAQs about losing money invested in the stock market

    To learn more about stock market losses, read our frequently asked questions below or contact us today:

    What are the odds of losing money in the stock market?

    This is impossible to predict as past performance cannot predict the future. However, historically in the US stock market, there is a 33% chance of losing money in any given year. However, as evidenced in this blog article, the odds of a positive return dramatically increases the longer you hold stocks.

    What can I do if I am uncomfortable with the potential losses

    If your risk tolerance is low, you may not want to invest all your money in an equity portfolio. Instead, consider a more diverse portfolio by investing in other asset classes such as fixed income and cash.

    Should you withdraw your investment if you notice losses?

    Unless you really need to access your money for a specific purpose, then withdrawing your investments at a time when your account value is down can hurt your returns. Instead of crystallising your losses, it could be a good idea to remain invested until markets hopefully recover in value.

    What is a stock market crash?

    A stock market crash (or a ‘bear market’) is when the stock market indexes fall more than 20%. Since 2000, there have been three separate stock market crashes, when stock prices have fallen more than 20%, causing investors to have lost money.

    Can you lose more money than you invest in the stock market?

    No, in the stock market, you cannot lose more money than you invest, as a share price can’t fall below zero. So the maximum loss is limited to the total amount you have invested. Of course, if you have borrowed money via a brokerage firm for a margin investment, then it is possible to lose more money than you initially invested.


    Based on compelling evidence, by adding more diversification to your portfolio, you can dramatically reduce both the level of volatility in your portfolio and your chance of a loss over various timeframes. This is extremely important for investors approaching or in retirement, along with those who are more risk-averse.

    Past performance cannot be used to predict future performance reliably. The information contained within this article is for guidance only and does not constitute advice which should be sought before taking any action or inaction. The portfolios I have discussed are for illustrative purposes only and may not be suitable. 

    For further reading, check out our guides all about stocks and investment here:

    Alex Norman-Jones​

    Alex Norman-Jones​

    I am one of the founders of Heritage and I am highly motivated to deliver bespoke financial planning solutions to my clients.

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