Don't put in stocks what you can't afford to lose? Really?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Actor
Posts: 5
Joined: Mon Dec 17, 2018 12:50 pm

Don't put in stocks what you can't afford to lose? Really?

Post by Actor »

New poster here. I've heard the above quote from several well respected analysts on TV, radio, blogs, and forums. But is this really a case of faulty semantics? Stocks are part of my long term retirement plan and I can't afford to "lose" that money. What I CAN afford is to leave that money alone for 10+ years and ignore the volatility that comes with equities. Is that indeed what is meant by that pithy statement?
Tamalak
Posts: 1979
Joined: Fri May 06, 2016 2:29 pm

Re: Don't put in stocks what you can't afford to lose? Really?

Post by Tamalak »

I think a more sensible saying would be that if you need the money in x years, don't have more than 2x percent in stocks.
RadAudit
Posts: 4384
Joined: Mon May 26, 2008 10:20 am
Location: Second star on the right and straight on 'til morning

Re: Don't put in stocks what you can't afford to lose? Really?

Post by RadAudit »

Welcome to the forum.

I think they meant what they said; but, I think their time horizon is shorter than yours and they are expecting (hoping?) you to panic and sell at some point.

One alternate interpretation could be to be sure your portfolio AA is at a point that meets your ability, willingness and need to handle the risks necessary to meet your goals and then stay the course. But that probably isn't good click bait.
Last edited by RadAudit on Wed Dec 19, 2018 3:30 pm, edited 4 times in total.
FI is the best revenge. LBYM. Invest the rest. Stay the course. Die anyway. - PS: The cavalry isn't coming, kids. You are on your own.
ionball
Posts: 269
Joined: Wed Jan 31, 2018 11:17 am

Re: Don't put in stocks what you can't afford to lose? Really?

Post by ionball »

The timeframe that you can hold makes a difference. If you own an index fund that has a basket of stocks, then you probably won't lose given enough time before you sell. However, an individual stock could go to zero. At zero, time ends beyond your control.
User avatar
Rick Ferri
Posts: 9703
Joined: Mon Feb 26, 2007 10:40 am
Location: Georgetown, TX. Twitter: @Rick_Ferri
Contact:

Re: Don't put in stocks what you can't afford to lose? Really?

Post by Rick Ferri »

I have yet to find any investor who lost money in a total stock market index fund or S&P 500 index fund if they held onto it long-term, and I doubt the future will be any different than the past.
The Education of an Index Investor: born in darkness, finds indexing enlightenment, overcomplicates everything, embraces simplicity.
User avatar
David Jay
Posts: 14569
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Don't put in stocks what you can't afford to lose? Really?

Post by David Jay »

Actor wrote: Wed Dec 19, 2018 3:12 pm New poster here. I've heard the above quote from several well respected analysts on TV, radio, blogs, and forums. But is this really a case of faulty semantics? Stocks are part of my long term retirement plan and I can't afford to "lose" that money. What I CAN afford is to leave that money alone for 10+ years and ignore the volatility that comes with equities. Is that indeed what is meant by that pithy statement?
I believe that a better phrasing is: Any money that you expect to spend in the next 5 years should not be in stocks.

I am entering retirement in a few weeks and the money that I need for living expenses for the next 6 years is in bonds, not in stocks.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
visualguy
Posts: 2988
Joined: Thu Jan 30, 2014 12:32 am

Re: Don't put in stocks what you can't afford to lose? Really?

Post by visualguy »

Rick Ferri wrote: Wed Dec 19, 2018 3:23 pm I have yet to find any investor who lost money in a total stock market index fund or S&P 500 index fund if they held onto it long-term, and I doubt the future will be any different than the past.
It did happen in other countries, and could happen in the US as well in the future.
Dude2
Posts: 1777
Joined: Fri Jun 08, 2007 3:40 pm
Location: FL

Re: Don't put in stocks what you can't afford to lose? Really?

Post by Dude2 »

Queue all the threads telling us that stocks are no safer longer term than they are shorter term.
User avatar
Dialectical Investor
Posts: 527
Joined: Mon Dec 03, 2018 10:41 pm

Re: Don't put in stocks what you can't afford to lose? Really?

Post by Dialectical Investor »

It can be quite a revealing statement. While it's hard to generalize--you would have to ask each speaker what they mean--it can serve as a good litmus test for whether someone truly believes in investing in the stock market or if deep down they equate uncertainty of outcome with mere gambling. I myself do not trust as much in the advice of those who "quit the game" once they've "won" or invest in stocks only what they "can afford to lose," and I don't find such a framework useful for guiding investment decisions.
visualguy
Posts: 2988
Joined: Thu Jan 30, 2014 12:32 am

Re: Don't put in stocks what you can't afford to lose? Really?

Post by visualguy »

Dude2 wrote: Wed Dec 19, 2018 3:32 pm Queue all the threads telling us that stocks are no safer longer term than they are shorter term.
"Safer" isn't the same as "safe". They may be safer long term than short term, but they aren't safe.
Fallible
Posts: 8795
Joined: Fri Nov 27, 2009 3:44 pm

Re: Don't put in stocks what you can't afford to lose? Really?

Post by Fallible »

Actor wrote: Wed Dec 19, 2018 3:12 pm New poster here. I've heard the above quote from several well respected analysts on TV, radio, blogs, and forums. But is this really a case of faulty semantics? Stocks are part of my long term retirement plan and I can't afford to "lose" that money. What I CAN afford is to leave that money alone for 10+ years and ignore the volatility that comes with equities. Is that indeed what is meant by that pithy statement?
It's just about impossible to say what they meant without having heard their actual words or knowing the context. So, assuming they were all saying the same thing and that it was something along the lines of stocks don't always pay off in the long run, see Rick Ferri's reply here. If they were all saying that you shouldn't invest money in stocks that you can't afford to lose in, say, the next five or ten years, that's good advice.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
wander
Posts: 4419
Joined: Sat Oct 04, 2008 9:10 am

Re: Don't put in stocks what you can't afford to lose? Really?

Post by wander »

If you are saving money for house down payment, say next year, then you should not be in stocks at all. That's something you can't afford to lose.
Mike Scott
Posts: 3574
Joined: Fri Jul 19, 2013 2:45 pm

Re: Don't put in stocks what you can't afford to lose? Really?

Post by Mike Scott »

There are degrees of "lose". Individual stocks can and do go to 0. If the Total Stock Market Index goes all the way down to 0, we all have a very different kind of problem.
Topic Author
Actor
Posts: 5
Joined: Mon Dec 17, 2018 12:50 pm

Re: Don't put in stocks what you can't afford to lose? Really?

Post by Actor »

Original poster here. Thanks for all the replies. To clarify I was referring to the issue that the statement can easily be taken by the less informed to equate all stock investing (including total market funds) to carefree gambling; that is, like money you bring to the casino and prepare to lose (permanently and in its entirety). I've heard it said numerous times on the air; at least one example is a show host that I do listen to on occasion and will provide him feedback that statements like this should at least contain caveats that time-bound or otherwise qualify the implication. The public can easily be swayed by all or nothing statements that influence sub optimal behavior.
casualflower
Posts: 382
Joined: Thu Jul 16, 2015 9:36 am

Re: Don't put in stocks what you can't afford to lose? Really?

Post by casualflower »

visualguy wrote: Wed Dec 19, 2018 3:29 pm
Rick Ferri wrote: Wed Dec 19, 2018 3:23 pm I have yet to find any investor who lost money in a total stock market index fund or S&P 500 index fund if they held onto it long-term, and I doubt the future will be any different than the past.
It did happen in other countries, and could happen in the US as well in the future.
Both things are true, but! if you were trying to avoid losing money in case such a calamity were to befall the US, what are your options? Rampant inflation is just as likely so you can't keep it in cash. Housing markets could crash, bonds could dive. What are the options?
visualguy
Posts: 2988
Joined: Thu Jan 30, 2014 12:32 am

Re: Don't put in stocks what you can't afford to lose? Really?

Post by visualguy »

metrunt wrote: Wed Dec 19, 2018 11:20 pm
visualguy wrote: Wed Dec 19, 2018 3:29 pm
Rick Ferri wrote: Wed Dec 19, 2018 3:23 pm I have yet to find any investor who lost money in a total stock market index fund or S&P 500 index fund if they held onto it long-term, and I doubt the future will be any different than the past.
It did happen in other countries, and could happen in the US as well in the future.
Both things are true, but! if you were trying to avoid losing money in case such a calamity were to befall the US, what are your options? Rampant inflation is just as likely so you can't keep it in cash. Housing markets could crash, bonds could dive. What are the options?
People will always need to live somewhere, and will pay for it. Real estate in good locations provides good diversification from the stock market, and good protection from inflation. For example, it's better to have $2M in the stock market and $2M in good real estate (e.g. major coastal economic centers) than $4M all in the stock market.
phantom0308
Posts: 492
Joined: Thu Aug 25, 2016 6:52 pm
Location: San Mateo, CA

Re: Don't put in stocks what you can't afford to lose? Really?

Post by phantom0308 »

Stock markets have been able to withstand a lot as long as they aren’t dissolved by some political revolution. Stocks didn’t do that terribly during Weimar Republic’s hyperinflation for instance (relative to everything else). As long as companies keep producing valuable owning a portion of their profits will be valuable.
Image
After a certain point you have to narrow your focus to what is more likely to occur and divide up your limited time to worrying about those situations. Is it really a good investment of your time to plan for scenarios with a 0.1% chance of occurring? If anything like that we’re to happen, hopefully we’ll still be mentally capable of adjusting to the circumstances and making the best of a bad situation.
Post Reply