Can You Lose All Your Money?

Bill Parrott |

Stocks and bonds continue to plummet, and there appears to be no end to the misery. The S&P 500 is down 9.6%; bonds have dropped 9.8%. As bad news mounts, can you lose all your money from stocks or bonds? The odds are pretty low if you diversify your assets across classes, sectors, and countries.

Since 1926, a 60% stock and 40% long-term government bond portfolio averaged 9.16% per year, but it has not been without blemishes. During the Great Depression, it lost 45%, and in 1974 it fell 14.13%, it dropped 11.85% in 2008.

You can reduce your risk and downside By adding more components to your portfolio. Adding small-cap stocks, international holdings, and real estate investments to a portfolio decreased the downside from 44% to 36%.

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Here is a look at some asset categories and their worst investment years.

  • Large-cap stocks lost 66% in 1932.
  • Small-cap stocks lost 67% in 1932.
  • Mid-cap stocks lost 43% in 1982.
  • International small-cap stocks lost 53% in 1985.
  • International developed stocks lost 50% in 1985.
  • Emerging markets lost 51% in 2009.
  • Real estate holdings lost 61% in 2009.
  • Government bonds lost 4.5% in 1981.

As I mentioned, the 60/40 portfolio lost 45% during the Great Depression, but from 1932 to 1936, it rebounded by 91%. After the 1974 decline, it climbed 47% from 1975 to 1976, and it soared 102% from 2009 to 2017 following the Great Recession.

Will you lose all your money from a diversified portfolio of mutual funds or ETFs? I doubt it. Actually, if history is our guide, buying investments when they’re down has been financially rewarding if you are patient.

I don’t know when stocks and bonds will recover, but it will happen eventually. In the meantime, follow your plan and diversify your assets.

April 221, 2022

Note: Past performance is no guarantee of future performance.