Can I lose all of my money?

With investing, the word risk is often used, but when investing sensibly (often with experts) it’s not as scary as you might be thinking, and it doesn’t mean you are risking all of your money where you could lose it all.

In order to grow your money over time, money is used to buy investments, such as stocks and shares in large companies, and because the value of these companies changes over time (such as companies selling more and making more money), so does the value of your investments overall.

When invested in a sensible way, a typical investment would hold the shares of 1,000s of different companies across many different industries (such as technology, healthcare, financial services and real estate), with the idea to benefit from the whole economy growing over time.

You could think of economies as countries, such as the UK or US, which typically grow over time as people, technology and machinery continually get more efficient over time, and things like new technologies are discovered and adopted (e.g. AI or the internet). Among a few other things, such as the population increasing and new infrastructure like roads being built.

As the world economy grows, companies grow, and so do the value of investments. In fact, companies as an average tend to grow faster than an economy.

So, by investing sensibly, you could expect the value of your investments to increase over the years.

However, investments don’t grow day by day in a regular way, there’s always ups and downs, but a sensible investment plan would tend to trend up over time. The longer you hold investments for, the higher chance there is of the value of the investments growing. Often investments are held for many years, often decades, and even your whole life such as with a pension.

So, you could see an investment fall by a certain amount, e.g. 5% in one year, for instance something might have happened to the economy, such as the Covid-19 outbreak, but the whole value of your investment wouldn’t be lost.

The best way of growing your money over time is simply patience. Investing and waiting many years for the economy to grow (and often continually saving monthly). Some years there will be high returns (such as 15% increase), other years it could grow a bit slower (such as 3%) and some years it could be negative (such as -10%), but it tends to smooth out over time.

However, there are no guarantees, so you need to be prepared to lose some money when investing.