You’ve probably heard people say, “Just put your money in the S&P 500 and let it grow.”
It’s almost treated like a golden rule of investing — safe, reliable, and guaranteed to make you rich over time. Even financial legends like Warren Buffett recommend it as one of the best options for the everyday investor.
But let’s be honest — if it’s that good, why do people still lose money in it? Can you actually lose money by investing in the S&P 500?
The short answer: Yes, you can — especially if you don’t understand how it works.
In this article, we’ll break everything down in plain language. You’ll learn what the S&P 500 really is, why it sometimes loses value, and how smart investors protect themselves when the market takes a hit. By the end, you’ll know exactly how to use it to grow your money safely over time.
Related: What does Warren Buffett say about investing in the S&P 500?
What Exactly Is the S&P 500?
Before we talk about risks, let’s clear up what the S&P 500 actually is.
The Standard & Poor’s 500, or S&P 500, is basically a list, or index of 500 of the largest publicly traded companies in the U.S. It includes well-known names like Apple, Microsoft, Amazon, and Google.
When you invest in the S&P 500, you’re not buying shares of one single company. You’re buying a tiny piece of all 500 companies at once through an index fund or ETF (Exchange-Traded Fund).
That’s what makes it powerful — it represents the overall U.S. economy. If the economy grows, the S&P 500 tends to grow too.
So… Can You Lose Money in the S&P 500?
Yes, absolutely. Even though the S&P 500 is considered one of the safest stock market investments, it’s still part of the stock market, which means it goes up and down.
Sometimes sharply.
Just like any other investment, there’s no guarantee you’ll make money, especially in the short term.
Why People Lose Money Investing in the S&P 500
Let’s look at the main reasons.
1. Market Volatility
The stock market is unpredictable. Prices move every day based on things like company performance, inflation, interest rates, and global events.
During times of crisis, say, the 2008 financial crash or the COVID-19 market dip — the S&P 500 has fallen by 30–50% or more.
If you invested a large amount right before a crash, your portfolio would drop significantly in the short run.
2. No Guaranteed Returns
Unlike savings accounts or bonds, there are no fixed returns. The S&P 500 could stay flat or even negative for months or years depending on the economy.
The market doesn’t move in a straight line — it has highs and lows.
3. Inflation and Economic Cycles
Even when the index goes up, inflation can quietly eat away at your gains.
For example, if your investment grows 6% but inflation is 3%, your real profit is only 3%.
Recessions, interest rate changes, or global slowdowns can also drag down market performance.
4. Short-Term Investing
This is one of the biggest mistakes. The S&P 500 works best long-term — ideally over 10 years or more.
If you invest for only a few months or a year, you’re more likely to experience losses because of short-term volatility.
Historically, long-term investors who stayed invested for 10+ years rarely lost money — but short-term traders often did.
5. Emotional Reactions
Let’s be honest — markets crash, and people panic.
When the S&P 500 dips, many investors sell out of fear, locking in their losses instead of waiting for recovery.
Remember: you only lose money when you sell at a loss.
How to Reduce the Risk of Losing Money in the S&P 500
Here are a few smart strategies that long-term investors (including Warren Buffett) swear by:
1. Think Long-Term
The S&P 500 rewards patience. If you keep your money invested for 10, 15, or even 20 years, history shows your chances of losing money drop dramatically.
In fact, over any 20-year period, the S&P 500 has never delivered a negative return.
2. Try Dollar-Cost Averaging (DCA)
Instead of investing all your money at once, invest smaller amounts regularly — say, monthly.
This approach, called dollar-cost averaging, helps you buy more shares when prices are low and fewer when prices are high. Over time, it smooths out your overall cost and reduces the impact of market dips.
3. Diversify Beyond the S&P 500
While the S&P 500 is already diversified across sectors like tech, healthcare, and finance, you can reduce risk even more by adding other assets — such as bonds, international stocks, or real estate ETFs.
That way, if one market struggles, others can help balance things out.
4. Don’t Panic During Downturns
This is key. The market always has rough patches, but history shows it always recovers.
Investors who held on through crashes (like 2008 or 2020) ended up with massive gains once the market rebounded.
When Investors Actually Lose Money in the S&P 500
Here are some common real-world scenarios:
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Investing right before a crash — your timing was unlucky.
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Selling during a downturn — panic selling locks in losses.
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Holding for too short a time — you didn’t give the market enough time to recover.
The lesson? Time and patience matter more than timing.
Historical Perspective: How the S&P 500 Performs Over Time
Despite temporary losses, the S&P 500 has a remarkable long-term track record.
According to Morningstar, it’s averaged around 10–11% annual returns over the past 50 years (including dividends).
But yes — there have been brutal drops along the way, such as:
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1973–74 recession: –48%
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Dot-com crash (2000–2002): –40%
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2008 Financial Crisis: –57%
Still, in every one of those cases, the market recovered and hit new highs.
Factors That Affect Your Risk Level
A few things influence how much you might lose (or gain):
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Economic environment: Inflation, unemployment, and interest rates.
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Investor behavior: Staying calm vs. reacting emotionally.
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Global events: Wars, pandemics, or political instability.
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Company earnings: The health of the 500 businesses within the index.
So, Why Do People Still Invest in the S&P 500?
Because despite its ups and downs, it works.
The S&P 500 remains one of the most trusted and proven wealth-building tools in the world. Here’s why:
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It’s diversified across 500 major companies.
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It’s easy to invest in through index funds and ETFs.
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It’s cost-efficient — low fees, no active management needed.
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And most importantly, it has a history of long-term growth.
Final Thoughts: Can You Lose Money in the S&P 500?
Yes — in the short term, absolutely.
Markets rise and fall, and anyone can experience losses if they invest during the wrong time or panic sell during downturns.
But over the long run, the S&P 500 has proven to be one of the most reliable ways to grow wealth — as long as you stay consistent, diversify, and think long-term.
So, if you’re investing for the next decade (not the next week), the odds are in your favor.
Related: Does the S&P 500 pay dividends?
