-By Charles Brown, M.Brown Financial Advisors

-May 4, 2023

No one likes to think about losing. If you play a sport, you probably never think about losing the game before the game starts. Investing is different. We need to understand what could potentially go wrong so that we can be prepared when bad things happen. Let’s talk about losing.

You Are Going to Lose

The first thing to wrap your head around when you are investing is that you are going to lose. Everyone is investing to make money – no one wants to lose. But you do need to PLAN to lose. How much should you plan to lose? I think this chart helps give you an idea of what to expect.

If you are invested in the S&P 500*, you should expect to lose 5% of your capital at least 3 times a year. You should expect to lose 10% of your capital at least once a year and 20% (or more) of your capital once every two to three years.

Does this mean that stocks will lose at least 10% of their value in 2023? No. Losses in any given year could be much worse or less severe than what this chart shows. Regardless, we should EXPECT losses during the year.

Why should we expect losses? Because stocks are a risky asset class that should give you a rate of return well above the risk-free rate to compensate for that risk. In exchange for that higher rate of return, investors need to except the downside volatility that is inherent in the stock market. Thus, the title of the chart: “Volatility Is The Toll We Pay To Invest”. If you want higher returns, you have to pay the toll. If you are unwilling or unable to pay the toll, then you have to except lower returns closer to the risk-free rate.

When losses do occur, investors should view them as a feature of the stock market and not like something is terribly wrong. This understanding will help investors stick with their asset allocation through difficult times, allowing their capital to compound.

*The S&P 500 is an index. You cannot invest directly in an index.

**The above article is informational in nature only and is not a recommendation to buy or sell securities.  All information is gathered from sources believed to be reliable, but neither Charles Brown nor Ausdal Financial Partners, Inc guarantees the accuracy of the information.  All investments carry a degree of risk.  Individuals should consult with their tax and investment professionals before making changes to their investment portfolios.

***Securities and Advisory Services offered through Ausdal Financial Partners, Inc., an SEC registered investment adviser, member FINRA & SIPC. 5187 Utica Ridge Rd., Davenport IA 52807, 563-326-2064, www.ausdal.com. Sub-advisory services offered through M. Brown Financial Advisors, a registered investment adviser with the state of Illinois. M. Brown Financial Advisors is located at 2728 Forgue Drive, Suite 100, Naperville, IL 60564, 630-637-8600.  M. Brown Financial Advisors and Ausdal Financial Partners are unaffiliated entities and only transact business in states where they are properly registered, or are excluded or exempt from registration requirements. Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission or any state regulators. Ausdal Financial Partners, Inc. does not accept buy, sell or cancel orders by email, or any instructions by e‐mail that would require your signature. Information contained in this communication is not considered an official record of your account and does not supersede normal trade confirmations or statements. Any information provided has been prepared from sources believed to be reliable but does not represent all available data necessary for making investment decisions and is for informational purposes only.