Early in the year the TSX was off to a great start as it was making new all-time highs. However, the past few weeks have shown us how quickly the tide can change, and how quickly optimism can turn to pessimism.
This should remind investors of one very important principle when it comes to investing: don’t invest money that you can’t afford to lose. When you’re using loans or other debt to buy stocks, that should raise some red flags. There is always a very real possibility that you could stand to lose your money, especially when dealing with speculative buys.
Even though it’s unlikely you’ll lose all of it, we’ve seen stocks lose more than half of their value in one day. Home Capital Group Inc (TSX:HCG) saw a big sell-off happen when a scandal about misleading investors came out nearly a year ago. The share price still hasn’t full recovered and it’s not something investors would have seen coming.
The danger with the stock market is that a very bad news day could cut your portfolio’s value in half. While there are some blue-chip stocks that will expose you to less risk than others, no company is immune from scandal and the consequences of it.
The financial crisis that’s nearly a decade old might be a distant memory now, but it offers a dark reminder that even big companies can fail.
No one wants to assume that their investment is a bad one, but refusing to see the risk doesn’t mean that it’s not there.