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“I Will Lose All My Money in the Stock Market”

According to a 2014 UOB survey, more than half of consumers in Singapore had avoided investing due to the fear of making a loss.

That fear is not without merit, as there have been years where the Straits Times Index (SGX: ^STI), Singapore’s market benchmark, has fallen in excess of 20%. You can see this in the chart below.

Return distribution for Straits Times Index

Source: S&P Capital IQ

But should we avoid investing then? To that, I would argue that we should not.

“The only people who get hurt on a roller coaster are those who jump off”

Foolish eyes will have noticed an important detail in the chart above. The returns of the STI were measured in one year periods. Said another way, it shows the STI’s returns if it was held for a year, but it says little about what could happen if the same index was held for longer than a year.

Therein lies a key point.

If nervous investors choose to sell when their investments turn red for the year, losses will be realized. This is what the sub-header above (it’s actually a quote from the late Paul Harvey, a financial radio host) meant.

Thing is – as Foolish investors – we have the choice of extending our investment time horizons beyond a year.

In this case, Foolish investors who have a much longer time horizon may be pleasantly surprised by what time can do for an investor’s results. After all, my fellow Fool Ser Jing had pointed out that investors who held the STI for the entire duration shown in the chart above would have enjoyed an annual growth rate of 5.4% in the investment.

Busting the fear of money loss

The fear of losing your money may stem from committing money which you do need in the near future. To avoid such a predicament, it is critical for the Foolish investor to only invest money which is not needed for the next five years or more.

This means we should be keeping a rainy day fund (which should not be used for investing) and only invest using money which is not earmarked for any important spending that is coming in the next few years.

This act of segmenting your cash may make the difference between you jumping out or being able to sit still during an inevitable downturn in the proverbial stock market roller coaster.

If we do manage to stay pat, we may stand a better chance of earning a decent return.

Foolish take away

All these is not to suggest that holding any stock for the long term will work out fine. Instead, it’s meant to help us keep in mind that if we have spent time to choose good companies, then we owe it to ourselves to give enough time for the management team to turn in the long term results that can carry our stocks.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.