Every new investor has questions. Many of them are the same questions: Is this normal? Am I doing it right? What happens if everything falls?
These are reasonable questions. The anxiety behind them is also reasonable. Investing involves uncertainty, and uncertainty is uncomfortable. The goal of this FAQ is to address the most common concerns with clear, process-based answers. It does not tell you what to do with your money. It explains how investing works and what patterns are typical.
This is general educational information, not personal financial advice.
Is It Normal to Be Down?#
Yes. It is entirely normal for a portfolio to be worth less than what was originally invested, especially in the early years.
Markets fluctuate. In any given year, a diversified share portfolio has roughly a one-in-four chance of producing a negative return.¹ Over shorter periods (months, weeks, days), the probability of seeing a decline is even higher. The more frequently you check, the more "down" moments you will observe, even if the long-term trend is upward.
Being down does not mean you made a mistake. It does not mean you chose the wrong investments. It means you are participating in a market that moves up and down.
The uncomfortable truth is that the best long-term investments tend to be the most volatile. Shares, which have historically delivered higher returns than bonds or cash over decades, also experience larger drawdowns along the way.¹ The volatility is part of the package.
What matters is whether the portfolio is appropriate for your time horizon. If you need the money in two years, a 30% decline is a serious problem. If you do not need the money for twenty years, a 30% decline is an event that history suggests will eventually reverse.
Should I Wait for a Better Time to Start?#
The question assumes there is a way to know when the "better time" will arrive. There is not.
Markets are forward-looking. By the time conditions feel comfortable, prices have usually already risen to reflect that comfort. By the time conditions feel dangerous, prices have usually already fallen. Waiting for clarity means waiting for information that the market has already incorporated.
Research on market timing consistently shows that missing the best days in the market has a disproportionate impact on long-term returns.² Many of those best days occur during periods of high volatility, often immediately after sharp declines. Investors who are waiting on the sidelines frequently miss the recovery.
The evidence suggests that time in the market matters more than timing the market.² Regular contributions over time (sometimes called dollar-cost averaging) reduce the risk of investing everything at a peak while ensuring participation in the long-term trend.
This does not mean investing at any moment is risk-free. It means that waiting for a perfect moment introduces a different kind of risk: the risk of never starting, or of missing years of potential growth.
How Do I Avoid Scams?#
Scams exploit urgency, secrecy, and the promise of guaranteed returns. Recognising these patterns is the first line of defence.
Red flags that warrant immediate caution:
- Promises of guaranteed returns or risk-free profits. All investments carry risk. Anyone claiming otherwise is either uninformed or dishonest.
- Pressure to act quickly. Legitimate investments do not require immediate decisions. Urgency is a manipulation tactic.
- Unsolicited contact. Cold calls, unexpected messages, or random approaches about investment opportunities are almost always scams.
- Requests for secrecy. "Don't tell your family" or "This is exclusive" are warning signs that the opportunity does not stand up to scrutiny.
- Difficulty withdrawing funds. Ponzi schemes and fraudulent platforms often allow deposits easily but create barriers to withdrawals.
Verification steps:
- Check the ASIC registers. Any person or entity providing financial services in Australia must hold an Australian Financial Services Licence (AFSL) or be an authorised representative of a licensee. The ASIC Connect Professional Registers allow you to verify credentials.³
- Search for independent reviews and complaints. Scams often have a digital trail of warnings from previous victims.
- Verify contact details independently. Do not use phone numbers or links provided in unsolicited messages. Find the official contact details through an independent search.
If something feels wrong, pause. The cost of missing a legitimate opportunity is far lower than the cost of falling for a scam.
What Happens If the Market Crashes?#
Markets crash. They have before and they will again. A crash is a decline of 20% or more from a recent peak, often happening quickly and accompanied by fear and uncertainty.
During a crash, portfolios lose value on paper. The losses are real in the sense that if you sold at that moment, you would receive less than your investments were previously worth. They are unrealised in the sense that you have not locked them in by selling.
Historically, markets have recovered from every crash.¹ The 2008 global financial crisis saw the ASX 200 fall more than 50%. Within a few years, it had recovered. The 2020 COVID crash saw a rapid 35% decline followed by an even faster recovery. This pattern is consistent across decades of market history.
None of this guarantees that future crashes will follow the same pattern. Past performance is not a guarantee of future results. However, understanding that crashes are normal (not exceptional) can reduce the emotional intensity of experiencing one.
The primary risk during a crash is not the decline itself. It is the behaviour it triggers. Panic selling locks in losses and removes the possibility of participating in the recovery. The investors who fare worst in crashes are often those who sell at the bottom.
Having a plan before a crash occurs is more effective than trying to make decisions during one. Written rules, pre-commitments, and circuit breakers reduce the likelihood of reactive decisions.
Can I Lose Everything?#
It is possible, but the circumstances that would cause it are specific and largely avoidable.
Ways to lose everything:
- Investing in a single company that fails completely (concentration risk).
- Using leverage (borrowed money) that amplifies losses beyond your initial investment.
- Falling for a scam or fraud where funds are stolen.
- Investing in highly speculative assets with no underlying value.
Ways diversification protects you:
A diversified portfolio spread across many companies, sectors, and regions is extremely unlikely to go to zero. For that to happen, every company in the portfolio would need to fail simultaneously. While individual companies fail regularly, the entire market has never gone to zero in any developed economy's history.
Broad market ETFs or diversified managed funds hold hundreds or thousands of securities. The failure of any single company has a small impact on the overall portfolio.
The key protections are diversification (not putting all eggs in one basket), avoiding leverage (not borrowing to invest), and due diligence (verifying that what you are investing in is legitimate).
When Should I Sell?#
This is a process question, not a prediction question. The answer depends on why you are invested and what your goals are.
Reasons to sell that are process-based:
- You need the money for its intended purpose (the goal has arrived).
- Your circumstances have changed (time horizon shortened, risk capacity reduced).
- Rebalancing requires reducing a position that has grown beyond its target allocation.
- The investment no longer serves its original function in your portfolio.
Reasons to sell that are often regretted:
- The market is down and you want to stop the pain.
- A headline made you nervous.
- Someone online said it was time to get out.
- You want to "lock in gains" without a plan for what comes next.
Selling in response to short-term price movements is often driven by emotion rather than strategy. Research on investor behaviour shows that individual investors tend to sell at the wrong times, often locking in losses or missing subsequent gains.⁴
Having a written plan that specifies when and why you would sell reduces the likelihood of reactive decisions.
Do I Need a Financial Adviser?#
That depends on your circumstances, complexity, and confidence.
Situations where professional advice is often valuable:
- Complex tax situations (business income, trusts, multiple income sources).
- Major life transitions (inheritance, divorce, retirement, redundancy).
- Uncertainty about whether your approach is appropriate for your goals.
- Difficulty creating or sticking to a plan on your own.
- Large sums of money relative to your experience.
What advisers provide:
Licensed financial advisers can assess your personal circumstances and provide personal advice tailored to your situation. This is different from general education, which explains concepts without knowing your specific details.
Advisers also provide accountability and behavioural support. Many investors benefit from having someone to call before making a reactive decision during a market downturn.
How to verify an adviser:
All financial advisers in Australia must be registered. You can verify their credentials through the ASIC Financial Advisers Register.³ Check for disciplinary history and ensure they hold the appropriate authorisations for the advice they provide.
Advice has a cost, and that cost must be weighed against the value provided. For some investors, the cost is worth it. For others, self-education and a simple approach may be sufficient. There is no universally correct answer.
Is Investing Gambling?#
No, though it can feel similar if approached poorly.
Gambling involves risking money on uncertain outcomes where the expected return is negative. Casinos have a house edge; over time, gamblers lose money to the house. The longer you play, the more likely you are to lose.
Investing, properly defined, involves allocating capital to productive assets with a positive expected return. Companies generate profits. Economies grow. Over long periods, diversified investments in productive assets have historically increased in value.¹
The distinction breaks down when investing is treated like gambling:
- Speculating on individual stocks based on tips or hunches.
- Day trading with the belief that you can outsmart the market.
- Chasing "hot" investments because they went up recently.
- Using leverage to amplify bets on short-term movements.
These behaviours introduce gambling dynamics into investing. The expected return may become negative, and the emotional experience mirrors gambling more than investing.
The difference is not the asset. It is the approach. A diversified, long-term, rules-based strategy is fundamentally different from short-term speculation, even if both involve buying and selling securities.
Summary#
Market declines are normal and expected; being down does not mean you made a mistake. Waiting for a "better time" to invest introduces the risk of never starting, as no one can reliably predict when conditions will be optimal. Scams exploit urgency, guaranteed returns, and secrecy; verification through ASIC registers is essential. Market crashes have historically been followed by recoveries, but the primary risk during a crash is panic selling. Complete loss of a portfolio is unlikely with diversification and avoidance of leverage. Selling decisions are best made according to a pre-written plan, not in response to short-term price movements. Financial advisers can add value for complex situations, but not everyone needs one. Investing differs from gambling when approached with diversification, a long time horizon, and a rules-based process.
Sources#
- Dimson, E., Marsh, P., & Staunton, M. (2023). Credit Suisse Global Investment Returns Yearbook 2023. Credit Suisse Research Institute.
- J.P. Morgan Asset Management. (2024). Guide to the markets. https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/
- ASIC. (2024). ASIC Connect Professional Registers. https://asic.gov.au/online-services/search-asics-registers/
- Barber, B. M., & Odean, T. (2000). Trading is hazardous to your wealth: The common stock investment performance of individual investors. The Journal of Finance, 55(2), 773-806. https://doi.org/10.1111/0022-1082.00226