You don't lose shares, but you lose the value. And until you have been through a crash, you don't know how you'll react to the loss.bob_m10 wrote:Reading through this interesting thread and realize I don’t have a good understanding of how this works. Say you are 100% invested in the total Stock Market Index and to keep it simple we are not contributing anymore to this fund and this is the only fund we have. Then 2008 or any big crash comes along and your portfolio take a large hit from $100/share to $1/Share as an example. What has really happened? Is it just the share price that has dropped or do I lose shares as well? If I don’t lose shares, then potentially I can always recover if the share price rises back to $100? If that is the case, would it really make a difference if I had bonds in my portfolio or not? As long as I make it back to $100 does it matter how low the portfolio gets in between? I must be missing something. Thanks
Have you heard that Mike Tyson quote "Everybody has a plan until they get punched in the mouth"?
People panic and sell low. You don't know if/when the stock price (in your example) will get back to $100; hindsight makes it a lot easier to decide you'd have stayed the course. And then there is always the possibility with an individual stock that the economic crisis can cause the company to go out of business and the stock becomes worthless.
Imagine if you are a retiree who is depending on that value to support yourself. That's when it would make a difference if you were holding bonds/cash in your portfolio, because you would not have to sell depressed stock to live on. You could use the bond/cash portion of tour portfolio to meet your expenses. And the bonds would have made your overall portfolio less volatile, which for many people would make it easier to avoid selling in a panic.