One dead-easy way to reduce your risk of ASX share losses

Those with a long-term view won't be surprised.

| More on:
asx share price growth represented by hand holding hourglass surrounded by dollar signs

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Most Aussie investors experience ASX share losses at one point or another. It is a part of investing. The possibilities are too broad to get it right all the time.

However, investing in the S&P/ASX 200 index (ASX: XJO) has proven to be a long-term wealth-building strategy for many Australians.

So while the prospect of investment losses can deter potential investors, the key to minimising these risks might be simpler than you think. Let's see what the experts have to say.

Why long-term investing reduces ASX share losses

According to the Finder 2024 Wealth Building Report, the data is clear: Patience pays off for long-term investors in the share market.

Market fluctuations can lead to losses over shorter investment periods, with a one-month holding period showing positive returns just 58% of the time.

Stretch that investment horizon to three months, and the success rate increases to 60%. A year brings it to 65%.

Meanwhile, hold a portfolio of shares for a decade, and the probabilities show an astounding 98% likelihood of profit.

The thing most investors fail to consider, especially early on, is that you need time for the mathematics to start working in your favour. And lots of time. A few months, even a couple of years, isn't sufficient.

Finder's findings show that the volatility of the ASX 200 diminishes over time, rewarding investors who can endure its ups and downs.

Managing risk doesn't mean avoiding it

While avoiding investment risk altogether might feel safe, it's far from financially prudent to attempt to avoid ASX share losses altogether.

Inflation erodes the value of stagnant savings, making inaction riskier than strategic investing.

For instance, findings from The Wealth Building Report show that money left in a savings account earning 4% per annum may fail to outpace inflation.

This is especially true during periods like the past two financial years, where inflation averaged 5.6% annually.

Conversely, investing in an index fund like the ASX 200 offers the potential for returns that comfortably outstrip inflation.

Meanwhile, Morgan Stanley says there are five common mistakes that investors make when markets get a bit choppy.

They panic sell, hold too much cash, make poor judgements, and, among other things, add to their losses. According to Morgan Stanley:

Investment losses are painful, but if investors can stay focused on their goals, rather than obsessing over monthly account statements, they will likely feel better and be better off in the long run.

Graham Cooke, head of Consumer Research at Finder, agrees:

Some investors fall into the cycle of buying and selling based on market swings, often leading to more losses. Over time, however, it's evident that a long-term approach can improve the likelihood of positive returns.

The ASX 200 index, tracking the 200 largest ASX companies, illustrates the value of patience. Finder's data on positive returns by investment period shows how returns become more consistent over time…

… This data clearly supports the case for patience and longevity in the sharemarket. Instead of frequently trading in and out of stocks in an attempt to catch the 'right' moment, investors can benefit more from allowing their investments to grow over time, riding out the natural market fluctuations.

To cap this off, just have a look at the compounding value of the ASX 200 over the last 10 years. Think about what the value of $1 is worth over this entire span. Now consider, frequently adding to this portfolio, how much greater the value will be.

Created with Highcharts 11.4.3S&P/ASX 200 Price Return (AUD) PriceZoom1M3M6MYTD1Y5Y10YALL1 Nov 201428 Nov 2024Zoom ▾20152016201720182019202020212022202320242016201620182018202020202022202220242024www.fool.com.au

How to minimise ASX share losses

There is no one thing you can do to prevent all investment losses. But we can use the power of time and compounding to our advantage.

Frequent investing and consistent contributions are time-tested methods for growing wealth. Nearly 12% of surveyed investors in Finder's report cited regular investments as their primary wealth-building strategy.

Instead of trying to time the market, one should let compounding work its magic.

So if you're looking to reduce the risk of ASX share losses, consider this: Stick to a long-term investment strategy, embrace manageable levels of risk, and let your portfolio grow over time.

Should you invest $1,000 in Sayona Mining Limited right now?

Before you buy Sayona Mining Limited shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Sayona Mining Limited wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Investing Strategies

happy investor, share price rise, increase, up
Growth Shares

Where to invest $5,000 into ASX growth shares now

These shares could be destined for big things according to analysts.

Read more »

ETF spelt out with a piggybank.
ETFs

Want to buy ASX growth shares? Consider these ETFs instead

Growth ETFs can be easier to invest in than shares.

Read more »

Male hands holding Australian dollar banknotes, symbolising dividends.
Dividend Investing

Why I'd buy ASX dividend shares now before it's too late

This could be the right time to look at ASX dividend stocks.

Read more »

Three happy office workers cheer as they read about good financial news on a laptop.
Dividend Investing

Beat low interest rates with these ASX dividend shares

As expected, on Tuesday the Reserve Bank of Australia elected to cut the cash rate once again. And with interest…

Read more »

A young bank customer wearing a yellow jumper smiles as she checks her bank balance on her phone.
Defensive Shares

Why Telstra shares are an appealing ASX defensive pick

Can investors call on this telco stock for resilient returns?

Read more »

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop.
Dividend Investing

Dividends from ASX 200 bank shares 'looking very stretched': expert

The banks have always been a favourite choice among ASX dividend investors. But the outlook ain't great.

Read more »

An executive in a suit smooths his hair and laughs as he looks at his laptop feeling surprised and delighted.
Dividend Investing

The best ASX dividend stocks to buy right now

Brokers think these stocks are top picks for income investors right now.

Read more »

A businessman compares the growth trajectory of property versus shares.
Growth Shares

Are these 2 top ASX growth shares buys?

ASX growth shares can deliver strong results. Should these stocks be in your portfolio?

Read more »