Did You Miss Out On Your Share of $200 Billion?

Wall Street 200 BillionYou'll never have the chance to lose a whole $200 billion, but the odds are fairly good that, over the past several years, you lost your personal share of $200 billion in potential investment gains.

In fact, most people lose quite a lot of money over their lifetimes -- much of it needlessly -- thanks to a host of avoidable blunders in how they manage their financial lives.

To get back to that $200 billion figure, for example, a recent Bloomberg article claimed that overall, Americans lost out on about that much by pulling money out of the stock market after being the financial crisis that began in 2008. The article offered some alarming statistics, such as:
  • "The percentage of households owning stock mutual funds has also fallen, dropping every year since 2008 to 46.4 percent in 2011, the second-lowest since 1997, according to the latest ICI annual mutual fund survey."
  • During the market's rally since 2008, the percentage of retirement money invested in stocks fell half a percent, when it typically rises significantly during rallies.
To be clear, people have been socking away money for retirement -- but they've been favoring bonds and other non-stock investments, even in our current environment of ultra-low interest rates. That's problematic, since over long periods, stocks have tended to outperform bonds and other alternatives.

Fear and Greed
Two emotions that often get in our way, financially, are fear and greed. Obviously, greed can lead us to do such things as spend too much on lottery tickets, even though we're aware of our microscopically small chance of winning. It can lead us to invest in high-flying stocks, too, hoping with crossed fingers that they'll keep soaring even though we may know little about them. It's easy to see how money gets lost due to greed.

But a lot of money is lost due to fear as well. Fear is what's keeping many people away from the stock market now, which in 2008 reminded us how cruel it can be, and which has reminded us frequently since then that it can be highly volatile. Consider this: The S&P 500's all-time high occurred in October 2007, when it hit 1,576. It's true that we're still below that high, a little more than five years later. Some might see that as a reason to stay out of stocks, but think again.

Timing Matters
Remember that the stock market (and each individual stock within it) doesn't move in a straight line. The S&P 500 fell from that all-time high to about 840 a year later and all the way down near 670 a little after that. That's a very harsh drop. But the fact that we closed the first week of 2013 at 1466 shows that big drops can be overcome. Those who stayed invested in the market have made up almost all of their loss and can hope for continued appreciation.

It's easy to point to market highs and lows and calculate how much someone may have lost, or gained, but that's not how most investing works. Few people invest all of their money at the market's high and then sell at its low -- or vice versa. Most of us add to our investments over time, as money becomes available to do so.

If you'd been adding to investments in the S&P 500 over time, the dollars you invested when it was near 670 would have more than doubled by now, and the dollars you added last year would have grown, too. (The S&P 500 rose about 13 percent in 2012, its best performance since 2009.)

What to Do
It's natural to be alarmed by big market drops, and it's smart to be cautious, too. But don't be extreme in your financial management, being too greedy or too fearful. Many financial advisors agree that it's best to have a diversified portfolio of stocks and bonds. It's also understood that the younger you are, the more risk you can take on, and thus you can have a bigger percentage of your nest egg in stocks, as they have strong growth potential.

For best results, learn more. Regularly read up on investing and money, so that your knowledge and perspective deepen. You'll be less likely to make costly mistakes that way.

Selena Maranjian is a longtime Motley Fool contributor. You can follow her on Twitter.

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Libtards love to use the word "greed."

January 08 2013 at 5:14 PM Report abuse rate up rate down Reply

i wouldn't even let obama invest my kids allowance! shame on 'all" of you that voted him back into office.

January 08 2013 at 11:55 AM Report abuse rate up rate down Reply

take my money please

January 08 2013 at 10:01 AM Report abuse rate up rate down Reply

200 billion is for Obama's friends only.

January 08 2013 at 8:22 AM Report abuse -1 rate up rate down Reply

anthonygolfbones : I am sorry you lost all your GM stock. I hope you had other holdings. I was taught to never invest more than 5% of my holdings in any one company. Dollar cost averaging with DRiP over time is the best way for us amatures to invest. Also, sell when everyone else is yelling and buy when everyone else is crying. I have the buy when others cry down pat. I throw money into ETF's when everyone panics and the market drops. I can never manage to sell just because I am ahead. It is hard to part with winners.

January 08 2013 at 3:26 AM Report abuse +1 rate up rate down Reply

The stock market these days is a Ponzi scheme. Companies do not distribute their profits as dividends. People buy stock hoping that new money will come in to buy their stock at a higher price. That is the definition of a Ponzi scheme. Once you buy a stock the money goes into someone elses pocket.

January 07 2013 at 8:17 PM Report abuse rate up rate down Reply

I don't blame the stock market for the loss of my old GM stock. Big business has just invented another way to screw investers in the stock market,its called bankruptsy and it is real popular and legal.A years after I lost all my GM stock which I had been buying for over 30 years they offered to let me have a chance to buy some of their new stock before it was offered to the public, on top of that the CEO got a 20 million dollar bonus and this was all legal.If I had it to do all over again I would buy gold or silver and tell GM and the rest of these thieves. to pound sand

January 07 2013 at 4:29 PM Report abuse rate up rate down Reply
1 reply to anthonygolfbones's comment

You might want to put some of the blame on BIG LABOR for demanding more and more and more.

January 08 2013 at 5:15 PM Report abuse rate up rate down Reply

Have they found the $1.6 billion Jon Corzine had stuffed in his mattress??

WASHINGTON, Nov 14 (Reuters) - MF Global's collapse and the loss of an estimated $1.6 billion in customer money was triggered by former CEO Jon Corzine's poor management decisions and lax protections for customer funds, a congressional investigation has determined.

January 07 2013 at 3:07 PM Report abuse +1 rate up rate down Reply

Wall Street and the stock market are just an insider's scheme to steal people's retirement money. The brokerage firms steer your money towards inside deals for the firm, take your money, make profit, and then they get out before the stock crashes. Now they are tring to steal people's Social Security money through the Republican party. They figure if they can destroy Social Security people will have no choice but to put their money into the stock market where they can steal it. Wake up America. Vote Democrat and get the rest of these right wing Facist Republican Congressman out of the Congress. They are trying to destroy the middle class and they want YOUR Social Security money!

January 07 2013 at 2:26 PM Report abuse -4 rate up rate down Reply
1 reply to audioknot1's comment

you must be completely on govt assistance and worrying that you may have to work someday .....

doubtful if your capable of being an indepndent .. you should move back to the country you came from .....

Your not an AMerican ... but trying to live off of Americans

January 07 2013 at 4:15 PM Report abuse rate up rate down Reply

My husband and I lost over 100 K in stock investments like World com etc. in the market crash of 2000. So investing in stocks in always risky. No matter the timing, unforeseen occurances happen.

January 07 2013 at 2:01 PM Report abuse rate up rate down Reply