If you invest in the stock market, you'll eventually experience emotions of euphoria, greed, fear, uncertainty, and self-loathing. The more emotionally weak you are, the less likely you'll enjoy investing in stocks and holding on for the long term. Losing money in the stock market stinks.
Given I spent my career working in equities from 1999 – 2012, I witnessed plenty of highs and lows. From people making millions to losing it all, I've seen enough. And given I left in 2012, I also missed out on many good years.
Therefore, I never got the courage to go all-in on stocks after the age of 35. The volatility bummed me out. Instead, I've diversified my net worth into real estate, venture debt, venture capital, and alternatives, while keeping my equity exposure to 35% of net worth at most.
How To Feel Better About Losing Lots Of Money In Stocks
If you invest long enough, you will lose money in the stock market. It is an inevitability. Either the single stock you bought will have a bad quarter or the fresh money you invested into an index ETF will inexplicably start to sell off soon after.
Recently, one of my top holdings, Netflix, reported terrible subscriber growth guidance. As a result, my $200,000 position lost over $50,000 in value in a single day! Ouch.
Not only was my Netflix stock down over $50,000 in a day, so were plenty of my other tech stocks and index funds during this latest market correction. Hundreds of thousands of dollars have evaporated into thin air.
Easy come, easy go, as is often the case with investing in stocks. But this time around, something felt different about losing lots of money in stocks. I don't feel the same amount of disappointment as I had in previous corrections. Instead, I feel somewhat apathetic.
If you're feeling bad about losing money in stocks, perhaps some of these tips can help you feel better. The reality is, you could be living with dead money for months or years. Therefore, you've got to figure out a way to move on and live your life.
1) Get busy doing hard things.
If you tackle something really difficult and succeed, losing money in the stock market will feel less painful in comparison. You're distracted and engaged. It's the juxtaposition between taking action and being a passive investor that really helps put your stock market losses into perspective.
As a passive investor who has no control over a business, there's nothing you could have done to prevent the losses except to control your asset allocation. Once you give into the mantra of control what you can control, you will experience a nice psychological release.
Further, taking action and succeeding is far more gratifying than making money from stocks. Even if you don't succeed, but cross the finish line with your life intact, that's often good enough to counteract any negative feelings about losing money as well.
If you're not a tennis or sports fan, feel free to skip this next section and go straight to point #2.
Example Of Doing A Hard Thing
On Wednesday night, I got back at 10:30 p.m. because I just played the most difficult league tennis match of my life. I had joined a new team with a new doubles partner. The match was indoors at our opponent's facility. Further, I had never won an indoor tennis match in my 12 years of league tennis. There's something about the lights and faster courts that hurt my ability to perform at my best.
At #1 doubles, my new partner and I were thrown to the wolves. It was the most important position in the lineup because it counted for two points versus one point. The odds of winning were less than 40%, especially against two crafty lefties who had played together for over a decade.
The match started at 7:30 p.m. and we quickly lost the first set 2-6. But we hung on in the second set and won 6-4. The turning point came at 4-4, 15-30, when our opponent was serving. I called his first serve out, which the server thought was in. They got pissed and began to mentally unravel. Anil, the partner who was not serving, decided to headhunt me twice while I was at the net. Headhunting is when you try to bash your opponent’s head with the ball. He missed both times as I ducked and both balls sailed long.
But our opponents regrouped and took the lead in the third set 5-3. The usually noisy indoor club was now quiet as it was 9:40 p.m. Everybody had gone home except for the 12 spectators spread across both teams. At this moment, I told myself that if we lose, it would be OK. I had fought my hardest against a tough opponent.
Miraculously, we were able to fight back to 6-6, which meant it was now time to play a 7-point tiebreaker to determine the victor. We were up 3-1, when once again, Anil decided to smash the ball at me while I was at the net. This time, it was fair play as the ball was going in. Only this time, I was able to get a racket on it. The ball hit the tape and dribbled over! We were up 4-1.
Anil got so pissed that he smashed the ball at the net while I was walking by for changeover at 4-2. It made me flinch, but I said nothing because I wanted to keep the good vibes alive. We had the momentum! Besides, as a father of two, my warring days are over.
I was serving and we were up 6-4 in the tiebreaker. All we needed was to win one more point to win the match! I ended up hitting a solid first serve out wide to Anil. He was forced to pop it up to my partner at the net who proceeded to dump the easy volley into the net! Nooo! Was my 12-year winless curse going to continue?
The score was now 5-6 and Anil’s partner was serving to me. Was I really going to mess up my return and blow our lead? Heck no! I ended up returning his first serve crosscourt and after a couple of rallies, my partner put an overhead away for a victory! We had just won a 2.5-hour match, the longest in my league-playing career.
Hard Things Put Stock Losses Into Perspective
I ended up going to bed at 2 a.m. that morning because I didn't want the thrill of victory to disappear. But when I woke up, the feeling of triumph was still there. Hopefully this feeling will never go away.
Although this match might sound trivial to you, to me, it was an uncomfortable activity that filled me with excitement. Most of my tennis friends aren't willing to play USTA league tennis because they don't want to be put in a stressful situation.
Had my partner and I lost our match, our team would have lost 2-3. Further, our wins and losses are all memorialized on the internet for all of the tennis community to see. So if you are a loser, everybody will know. As a result, most tennis players don't play league tennis. It's just too stressful.
Winning this match successfully negated the pain of me losing $50,000 in Netflix stock. Sure, I could have sold the stock earlier to avoided losses. However, I've held the stock for 10 years already. Netflix was our saving grace during the pandemic. I'm happy to hold on for a lot longer.
2) Have a diversified net worth.
If you have more than 50% of your net worth in one asset class that is tanking, you will likely feel a lot of pain and fear. As a result, by the time you reach a minimum level of financial independence, I recommended keeping any risk asset to less than 50% of your net worth.
Sure, you may miss out on some further gains if stocks outperform other asset classes. However, you'll also minimize the volatility in your net worth as well as any emotional damage. Of course, if you have diamond hands, feel free to concentrate your net worth all in stocks or whatever risk asset of choice.
However, most people who get wealthier over time get more risk-averse. They become more satisfied with what they have. Therefore, they're willing to accept lower returns for lower risk. As a result, wealthier people tend to diversify their net worth across many investments.
With a diversified net worth, even if your stocks are tanking, your real estate holdings or bond portfolio might be appreciating in value. You'll tally up your cash and give it a virtual hug. As a result, you won't feel the pain of stock market losses as acutely.
Depending on your percentage weighting in stocks, you might actually feel better when stocks are correcting because you will feel good your diversification is finally paying off. Further, your other investment might be providing returns that more than make up for your stock market losses.
A diversified net worth gives you HOPE that everything will turn out OK. Often, the biggest challenge to developing a diversified net worth is overcoming greed. Investing FOMO can be extremely hard to overcome. If you are more satisfied with what you have, it's easier to give up potentially higher returns by diversifying.
3) Zoom out. Focus on your little ones.
If you're feeling bad about losing money in stocks, simply zoom out 5-years, 10-years, and to the maximum time horizon. The more you zoom out, the better you should feel because the upward-sloping chart looks smoother, at least for the broader markets.
Your goal is to invest when times are good and bad. Over the long-term, the S&P 500 has performed very well. The problem some investors have is not being able to hold on during downturns. If you can keep on investing during downturns, chances are extremely high, 10 years from now, you'll make money.
Another trick to feeling better about your stock losses is to shift your time horizon from yourself to your children if you have any. By thinking about your children, you start viewing selloffs as opportunities, not setbacks.
20 years from now, when your children are adults, how do you think they will view today's stock market selloff? Looking back, I believe our children will view it as a wonderful time to buy. As a result, it becomes much easier to invest in your child's 529 plan, custodial investment accounts, and custodial Roth IRA.
4) Expect to lose 35% of your wealth.
The global financial crisis resulted in about a 38% correction in the S&P 500 in 2008. The March 2020 meltdown was a 32% correction from peak to trough. Therefore, to make yourself feel better, take a 35% haircut off the value of your stocks. This way, your realistic downside expectations are set.
Once you set low expectations, any losses less than 35% will feel better. Thinking about realistic worst-case scenarios is one of the best ways to extinguish fear. Below is a chart showing the historical returns of the S&P 500.
5) Think about all the money you spent that didn't get invested in the stock market.
All the money you spent paying down debt instead of investing is a huge win during a stock market correction. If you have any type of debt and follow my FS-DAIR framework, then you're always using a percentage of your cash flow to pay down debt. The debt interest rate might have only been 2.5%, but that's still better than losing 10% in the stock market.
Further, any money you spent on great experiences, tuition, food, shelter, and other expenses should also make you feel better. This is why it's important to try and live the life that you want while on your journey to financial freedom. If you can concurrently spend enough money to live a comfortable life while also continuously investing, you're hedged against investment losses.
At the end of the day, the reason why you invest is to live a better life and take care of future generations. Don't forget to enjoy your stock market gains on occasion. Otherwise, all your hard work and risk-taking will be for nothing.
6) Know that things could always be worse.
When someone is making more money than you in a bull market, you may feel bad if you're not a self-confident individual. However, during stock market corrections, that person is also likely losing a lot more money than you.
Heck, during the global financial crisis, we were all tens of billions of dollars closer to Warren Buffett's net worth, not because we were outperforming, but because he was losing so much money! But even if Warren lost 99% of his net worth, he would still be 99% richer than all of us. So he's not a great example.
You might lose 35% of your stock portfolio's value in one year. But it could have been worse if you went on 50% margin before the crash. Your largest single-stock position might lose 25% of its value in one day after missing earnings exceptions. But it could have been worse if you decided to join the company right before the disappointing results.
By knowing that things could always be worse, you better appreciate what you have right now. In the grand scheme of things, losing money in the stock market isn't that big of a deal. Life usually goes on if you didn't over-leverage.
7) Stay off social media.
Social media mostly tries to curate the best versions of ourselves. You will seldom find people who will admit losing $50,000 in one day on a stock position.
During a stock market downturn, there will inevitably be people who brag about how they sold or shorted before the correction. Such information will piss you off. A guy who has been negative on stocks for 10 years in a bull market will shout how he was right all along.
Given investing can be emotional, the most emotionally unstable people will get on Twitter and Facebook to release their emotions. Therefore, you should avoid social media or rigorously scrub your feed.
8)Do some physical exercise.
If you're feeling stressed out, close your computer, shut off your phone, and go for a nice long walk. If you want to do something more fun, go play a sport with some friends.
Exercising with friends always puts me in a good mood. Further, exercise helps me sleep much better as well. A positive cycle!
9) Write out your thoughts.
Writing forces you to think more deliberately about issues. As a result, you will feel more calm during a difficult time. I highly suggest giving journaling a go if you don't want to start a blog like this one. There may be no better free therapy than writing.
Writing this post makes me feel better about my stock market losses. It is also satisfying to know this article might help a worried investor out there. Without losing so much money in Netflix, I probably wouldn’t have written this post. Always think about the positives!
Make Sure You Enjoy Your Gains Along The Way
Losing money in the stock market stinks. I get it. I lose money in the stock market all the time! However, over the long run, stock investors tend to win far more than we lose.
If we can continuously use some of our stock market gains to pay for a better life, it's hard to feel too bad. Since 2003, my strategy has been to take some gains and convert them into real estate. This way, I get to actually enjoy some of my stock market gains while potentially making money off my primary residence as well.
Over time, I've continued to convert some funny money into rental properties. This increases the chances my gains will continue given I've round-tripped plenty of stocks before. Further, the conversion also helps boost passive income given real estate tends to generate much higher income than dividend stocks.
Investing in the stock market will always be a core part of building wealth. Just make sure you've got the proper asset allocation. The money we lose is deserved because we invested appropriately based on our risk tolerance.
Investing in stocks can feel empty after a while because it provides no utility. And ironically, it is that empty and emotionless feeling you need to be able to hold on to when times are difficult.
Invest In Private Growth Companies
To avoid losing money in the stock market, invest in private growth companies instead. One of the most interesting funds I'm allocating new capital toward is the Innovation Fund. The Innovation fund invests in:
- Artificial Intelligence & Machine Learning
- Modern Data Infrastructure
- Development Operations (DevOps)
- Financial Technology (FinTech)
- Real Estate & Property Technology (PropTech)
Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI! Of course, there are no investment guarantees, but it's nice to diversify into private growth companies with less visible volatility.
The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. In addition, you can see what the Innovation Fund is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hopes the general partners will find great investments.
Stay On Top Of Your Finances
During volatile times, it's imperative to stay on top of your finances. To do so, I use Empower, the best free wealth management tool today.
Before Empower, I had to log into eight different systems to track 35 different accounts. Now I can just log into Empower to see how my stock accounts are doing. I can easily track my net worth and spending as well.
Empower's 401(k) Fee Analyzer tool is saving me over $1,700 a year in fees. It's important to analyze your net worth allocation to see if it's appropriate. Finally, there is a fantastic Retirement Planning Calculator to help you manage your financial future.
Once you link up over $100,000 in investable assets to track, you can then sign up for a free financial advisor session to get an analysis of your net worth and investments.
Readers, how else do you feel better when you're losing money in the stock market? Anybody buying stocks here? Joint with 60,000+ other readers and sign up for my free weekly newsletter.