Stock markets can and have gone to zero, for example, investors in russian stocks lost everything when the communist revolution happened.
For funds diversified through most of the world’s stock markets, I would expect a journey to zero to potentially happen in case of rare but very high impact disastrous events like regulatory changes (owning stocks becomes illegal), global collapse of the relevant IT systems (loss of all existing data) or fraud from the broker or the fund provider (they’d then provide false documents stating you own assets that don’t actually exist while they ran away with your cash). The chances for that are very, very, very low, but they exist. To note that in most of those scenarii, a bank account wouldn’t provide much more safety than brokered stocks and bonds.
More likely are huge dips where the markets go down significantly, but do not reach zero, and take significant time to recover, or never recover to their previous highs. There is no guarantee against that, it might happen. That is why it’s often said that we should only invest in stock money we can afford to loose. Our thesis is that stocks are shares of publicly listed companies that provide real goods and real services. As long as companies are expected to be profitable, stocks should be expected to have a real return. If an economy with a mature, diverse and well regulated stock market grows, then stocks related to that economy, taken as a whole, should also grow.
The same doesn’t hold for cryptos, and the same doesn’t hold for bonds, that are a contract between an entity and yourself. In that later case (bonds), they will provide a return as long as the companies/governments issuing them are solvent and willing to make the payments they have agreed upon by issuing the bonds.
So, there are risks. One should assess whether they are worth the prize, though. The prize is building wealth at a faster pace than pure savings allow (and pure savings are very, very slow). My take is that at the beginning of the journey, taking risks is very well worth it because loosing our invested assets is a return to point zero, of which we weren’t very far anyway. One may want to be more conservative and diversify across asset classes as our wealth grows. Note that even then, keeping a part of our assets invested in stocks provides diversification that is well worth the risk in my opinion.
I try to think in terms of what my means are, and how I am expecting to reach my goals.
My means are, in that order:
- my mindset: always get back up one more time than you fall ;
- my skills ;
- my time ;
- my social network (people who would help me in case of need) ;
- my physical and financial assets (more agressive ones like stocks, more conservative ones like warm blankets, cans of food and waterproof tarps, a house would rank highly in that category);
- societal support (social insurances and the like).
My financial assets don’t rank that high and, as such, they are mostly expendable. They help me to stay mentally healthy (by not feeling threatened and taking vacations), better my skills (by getting access to more expensive training), cultivate my social network (by increasing the number of ways I can help the people close to me) and increase my physical assets base. They’re a very effective fuel to steady my situation, help me achieve my goals and not worry about things, hence why I consider making them grow is worth the (calculated) risks.
My core basis of operational strength doesn’t come from there, though. I can loose a good chunk or all of my assets and still keep my mindset, my skills and my friends and family. By diversifying the kinds of assets I own, I can increase that operability and be confident that, whatever the situation, I will be able to use my time to achieve ownership of the things I really need. We are stronger and can weather more than we often think.
On that basis, I can assess what I am able to loose and still move on. That part of my assets can be invested in stocks. It can be, and currently is, all of my money.
