If you’ve been in the investing space for any time you’ve likely heard this because it’s spouted so much it’s almost become a cliche.

But most people either dismiss these rules completely because of their simplicity.  Or they are like “okay… But how do I not lose money when investing?”

For the people who dismiss this, they do so at their own peril.

Why?

Because the fewer investment losses you have, the faster your money compounds.

Here’s an example of this.

Let’s say you have $100,000 to invest, but in year one you lose $50,000 of that investment.

This means you lost 50% of your money in year one and your portfolio is now down $50,000.

To make up that loss, you now must earn 100% on your remaining $50,000 investment just to get back to even.

This is why you should do everything in your power to minimize potential downside risks – and losses – when you’re considering any investment.

Whether that’s in stocks, bonds, real estate, crypto, or anything else.

The often said investing statement of “more risk more reward” is a fallacy and myth.

The better approach is low risk AND high reward because you’re going to lose less money over time.

This means you keep more capital.  It means you don’t have to “make up” for investment losses with huge gains.  And this combines to help you compound your capital faster.

Here’s an illustration of this.