investing in mutual funds for long term - what is worst case scenario when one could lose all the money?

Question

Example - If i had money invested since before the dotcom crash, and kept it there after the crash, would my money have regained its value?
Or, same question, but during great depression.
Should I switch to money market fund during a scare? Is this or any other savings safe in the bank? Many questions, thanks for any input

Answer 1

Since the mid 1920's during all the 20 year holding periods from than until now, there would have been ZERO times you would have lost money investing in the stock market as a whole (widely diversified mutual fund). During the same time period, during all 10 year holding periods, you would have made money during 97% of those periods.
Should you switch to a money market during a scare? If you time the market properly (get out at the very top and know when the very bottom will occur to get back in) then yes ---------but so far NOBODY has been able to do that. So stay in and when the price is low, think of stocks as shoes, and buy when they are "on sale."

Answer 2

Lose all the money! I don't know how that would be possible. I mean every stock would have to go to 0.

I was listening to Bob Brinker's Money Talk last weekend. Every time we had one of these market corrections, like we've been having, people always say the market is toast and we should get out. And every time a few months later, the market is higher than in the past. The dot.com bubble was something else, as people invested good money in worthless companies based on web traffic rather than dollars and cents.

Yes, we are seeing the housing bubble burst, but prices have not come tumbling down. There's still a house there. It still has value. People still need a place to live.

I think most of the bad news for financial companies has already been announced, and the market has already corrected in that sector. Oh it will still be volatile, but I think if you are still in now, it's a good time to stay in, though maybe not if your mutual fund concentrates on financial companies.

Answer 3

That is why you diversify. If you had 1/4 of your money in an S&P index fund, 1/4 in an international index fund, a 1/4 in a sector specific fund , and 1/4 in bonds/cash you would be well diversified. If you lost all you money - the world is probably coming to an end anyway and we'd all have bigger problems. So diversify across the spectrum and you will safeguard yourself against huge losses.

Answer 4

Take a look at the 10 year returns of mutual funds (you can use morningstar.com, Yahoo Finance and other sites to do this). That will answer your question regarding your example.