And the answer is no money is lost—only value except in one instance.
But before I share that one instance with you, you must understand that stock prices, like real estate prices, are estimates of value.
If you want either, and you buy it, then you have agreed to its worth (value) at the time of the transaction and you have converted your cash into equity.
If you buy a single share of stock for $10 and the price goes down to $5, you have not lost $5 of cash money unless you sell at that point.
But did the person from whom you purchased that stock for $10, does he have your $5? What if he bought the share of stock that he sold you for $10 for $15?
What if you choose not to sell when the price is down and hold onto it and the price goes up to $15 and you sell at that point? Have you lost any money and had you actually lost any when the price was at $5?
Value is not cash. That is how many of us overestimate our net worth. For example, let’s say we buy a new car for cash. We pay $30,000 for the car plus another $2,000 for the other related costs such as license and taxes.
How does that reflect on your net worth assuming you paid cash? Do you simply exchange the cash amount for the same amount as the net worth of your new car? No way! That car is worth, MAYBE, $25,000. In other words, you have lost $7,000 and your net worth after the transaction is down by that amount.
$7,000 is a lot of money to pay for that new car smell, wouldn’t you agree?
But a share of stock is accounted for differently on your balance sheet (net worth statement).
If you buy it for $50, there is a direct exchange of cash for equity on your net worth statement. And whether the value of the share goes up or down, it can reside there for the same $50. It is only when you sell it and bank the money will a profit or loss actually be realized.
The reason that many people lost real money during the housing crash of 2008 is that they decided to sell (or were forced to sell or foreclosed on) when the value of the market was down. If they had been able to hold on for just five years the value of the property would have recovered and they would have avoided the loss of actual cash money (vs value).
Losses in value are apparitions only real if you make them so: Only when you have to deplete the store of value by selling the asset will you actually incur an actual loss.