Yes, you can lose money when investing in the stock markets. Investing comes with risk – it is the only way we can make a return in financial assets – which means the value of your investments will fall from time to time. This is perfectly normal as markets ebb and flow with the cycles of the economy.
Some investments, such as those in direct company shares, are at the very risky end as you are exposed to the fate of a single organisation. To reduce some of these individual risks, you can diversify your investments by using collective funds that contain a number of assets, for example 50 – 60 stocks. We believe this is a much more sensible approach to building wealth over the long term. As a result, funds represent a big chunk of the products offered at investing platforms.
Some funds have professional investors at the helm, selecting stocks they think are best from a particular market. It’s worth noting that the use of investment professionals will be reflected in the cost. If you’re looking for a cheaper way to invest, there are funds known as trackers or ETFs (exchange traded funds) that do not have investment professionals selecting stocks, but rather simply track particular markets by buying all the same investments within it.
In addition, you may diversify your investments further by investing in differing asset classes that come with different risks, such as bonds or property or alternatives such as physical infrastructure; as well as in different markets, such as the US or Europe. But keep in mind, this is all investing, and investing comes with risks. Be comfortable with these by learning more at Steps to Investing.