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I am 26 and beginning to learn about investing. I currently have no investments other than some schemes through my employer, which I've already maxed-out.

I've read that VTI is a long-term, low-risk option, and a good choice for beginners. What I want to understand is under what circumstances would I lose money investing in this.

One possibility I can see is that I cash out at the wrong time. But I am not in a hurry to get my money back, so I'm comfortable with this risk.

Another possibility is that the value falls and never goes back up. But in this scenario, surely we're talking about world-ending cataclysm? In which case all bets are off, and my savings and pensions will also lose value. So I'm comfortable with this risk as well.

Am I understanding these two risks correctly? Are there other risks which I haven't understood?

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  • Does this answer your question? money.stackexchange.com/questions/134024/… Specifically, your comment "Another possibility is that the value falls and never goes back up" is referred by someone pointing out that the Nikkei 225 collapsed 30 years ago and has not yet recovered. – RonJohn Dec 23 '20 at 15:53
  • @RonJohn This is certainly valuable information and I'll read more about Nikkei 225. Thank you. – daisy Dec 23 '20 at 16:00
  • Note that even though "it's possible" you can lose money in the US stock market, all of the regular contributors to this site are invested in the US stock market... – RonJohn Dec 23 '20 at 16:07
  • @RonJohn - is the linked question close enough to close this one as duplicate? If not, how is this one different enough? – JTP - Apologise to Monica Dec 23 '20 at 16:16
  • @JTP-ApologisetoMonica it looks duplicate to me... :) – RonJohn Dec 23 '20 at 16:17
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under what circumstances would I lose money investing in this

The situation,

  1. "Everyone agrees" that "in the long term" (let's say more than 40 years but we'll come back to this issue) a broad basket of stocks does well.

  2. It could be that "everyone" is wrong. It could be that we have been in a very long cycle (200 years) where (1) was true, and, it could be that ... (1) is ending, say, next Tuesday afternoon. So for the next 200 years "everyone" will say "stocks don't really go anywhere long term". {It's actually trivial to think of completely reasonable rationales why that could happen: stocks only mattered in the Western-world sphere of history which is long gone; something to do with technology; vastly increasing lifespans; dropping birthrate .. who knows.}

  3. More on (2), note there are plenty of major markets that are a dumpster fire - just look at a long-term (50 yrs) chart of the Japanese stock markets. And have fear.

  4. Regarding the "long-term" thing in (1). what people really mean by that is: if there are dips, the dips only last for 10 years or so! and then they come right back up! Whoo! That's fine. But if you reach retirement in one of those dips .. you're screwed. "It will be right back up, sometime after I'm dead" is not good.

Another possibility is that the value falls and never goes back up. But in this scenario, surely we're talking about world-ending cataclysm?

Unfortunately no for two reasons. (A) There's the point 4 factor. It might come back up - when you're long dead. (B) There's the point 2 factor. It is completely conceivable that in say 2040, everyone is saying "Wow it's so obvious the US markets disappeared since China obviously utterly crushed the US [or, some other reason we do not today guess]". The usual Cautionary Tale on this is the Nifty Fifty, which were a group of stocks "everyone" thought you could invest in safely "forever"; they're basically all now bankrupt.

Are there other risks which I haven't understood?

Yes, timing is the big thing in investing/trading. The usual Cautionary Tale is Apple stock, which is the single biggest dog ever in 500 years of investing history. (See graph https://money.stackexchange.com/a/127868/41786 ), many people people literally died waiting for it to explode, their last thought being "I'm sure Apple will explode! one of these days. They have such fantastic ads!" Of course, if you happened to buy it the day before it exploded, you conveniently forget all those died-waiting people, and you think you're clever. Like comedy, trading is all in the timing. The risk you're not thinking of is timing, it can get you.

Are there other risks which I haven't understood?

Yes, margin. Investing is mainly about margin (since it's a multiplier) and secondarily about whether the thing goes up or down such-and-such percentage. Margin is exceptionally important/dangerous because

A) If you don't use margin you may merely only get gains somewhat like inflation. If you spend 50 yrs of your life achieving "very little" - you're screwed.

B) If you do use margin and pick the wrong direction, you get really, really screwed.

It's tough.

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