Don't put in stocks what you can't afford to lose? Really?
Don't put in stocks what you can't afford to lose? Really?
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?
Re: Don't put in stocks what you can't afford to lose? Really?
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.
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Re: Don't put in stocks what you can't afford to lose? Really?
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.
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.
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Re: Don't put in stocks what you can't afford to lose? Really?
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.
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Re: Don't put in stocks what you can't afford to lose? Really?
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.
Re: Don't put in stocks what you can't afford to lose? Really?
I believe that a better phrasing is: Any money that you expect to spend in the next 5 years should not be in stocks.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 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
Re: Don't put in stocks what you can't afford to lose? Really?
It did happen in other countries, and could happen in the US as well in the future.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.
Re: Don't put in stocks what you can't afford to lose? Really?
Queue all the threads telling us that stocks are no safer longer term than they are shorter term.
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Re: Don't put in stocks what you can't afford to lose? Really?
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.
Re: Don't put in stocks what you can't afford to lose? Really?
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.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?
"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
Re: Don't put in stocks what you can't afford to lose? Really?
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.
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Re: Don't put in stocks what you can't afford to lose? Really?
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.
Re: Don't put in stocks what you can't afford to lose? Really?
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.
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Re: Don't put in stocks what you can't afford to lose? Really?
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 wrote: ↑Wed Dec 19, 2018 3:29 pmIt did happen in other countries, and could happen in the US as well in the future.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.
Re: Don't put in stocks what you can't afford to lose? Really?
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.metrunt wrote: ↑Wed Dec 19, 2018 11:20 pmBoth 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 wrote: ↑Wed Dec 19, 2018 3:29 pmIt did happen in other countries, and could happen in the US as well in the future.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.
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Re: Don't put in stocks what you can't afford to lose? Really?
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.
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.
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.