Could I lose everything?

Could I lose everything?

1/3/2021

This is the question of many people who are new to investing. The reason for asking is the fact that most people still confuse investing with speculation. When we think of investing, we often think of the stressful work of Wall Street traders who buy and sell stocks every minute in order to maximize profit by buying cheap and selling expensive. However, investing is much less action and drama. Speculation, on the other hand, is more like a game of chance. Either I win or I lose. Statistically, you have a slightly higher probability of winning than in Sportka, but not by that much.


If your goal is to maintain the value of your money, appreciation above inflation, or building up a reserve for annuity payments, when you buy and sell is not the most important thing. What matters is the right strategy and following the investment rules. I may disappoint some, but investing is not a game that depends on chance. 

Back to our question: could I lose everything? The answer is: "Yes...if you speculate." If you speculate by buying one company's stock cheaply, or buying one corporate bond, you are taking on too much risk. The company you bet on may go bankrupt, its stock may become worthless, or it may not be able to pay back even the face value of the bond.

We all know the story of NOKIA. At the end of the 1990s, hardly anyone would have expected the company to fall asleep and 10 years later remain at the tail end of the industry. 

However, if you didn't try to guess and invested your money in, for example, a stock fund that contains hundreds of the biggest companies in the world, you wouldn't even notice the collapse of one of them. . Moreover, you would ensure that you invest in companies from many sectors of the economy. This spread would almost double your deposit over 10 years (see figure below). So if you spread the risk and don't bet on just one card, the risk of losing the entire value invested is minimal. This is assuming that the investment is properly spread between shares (shares in companies), bonds (interest-bearing debt securities) and alternative investments (real estate, gold...).

Investing in quality assets over the long term is one of the most effective ways to outperform inflation. Not only that, you can invest in companies whose products you use every day and still appreciate your reserves over the long term. Your fears of "losing it all" will be allayed by the right allocation of the amount you invest, and most importantly, a strategy that reflects your financial background, goals and willingness to tolerate fluctuations in the value of your portfolio. So you don't have to worry about investing wisely at all!

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Ing. Petra Štěpánková, MBA, EFA

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petra@meliorinvest.cz

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