why investors lose money in stock market || Never Lose Money in the Stock Market: A Comprehensive Guide to Investing Safely || How to invest in the stock market and never lose money

Investing in the stock market can be daunting, especially when the goal is to avoid losses. Fixed index annuities have been touted as a way to invest in the stock market without losing money over the short term, but they come with high commissions. Fortunately, there is a do-it-yourself alternative that avoids these high fees. By investing the bulk of your equity portfolio in bonds and using the small remainder to purchase in-the-money index call options that expire at the same time the bonds mature, you can guarantee that you will not lose money over the period between when you initiate the trade and the date on which the bonds mature and options expire. In this article, we will explore this strategy in more detail and discuss how you can use it to invest in the stock market and never lose money.

Firstly, it is important to note that fixed index annuities are not the only way to invest in the stock market without losing money. As previously mentioned, you can use a bonds-plus-calls strategy to achieve this goal. This approach involves investing the bulk of your equity portfolio in high-quality corporate bonds that mature in two years, with the remaining 6.3% being invested in a two-year in-the-money call option on the S&P 500. The bonds-plus-calls strategy ensures that you will not lose money over the period between when you initiate the trade and the date on which the bonds mature and options expire.
For instance, a simulation conducted by Michael Edesess and Robert Huebscher assumed that every two years, their hypothetical portfolio invested 93.7% in high-quality corporate bonds maturing in two years and 6.3% in a two-year in-the-month call option on the S&P 500. This strategy produced a 5.4% annualized return over a simulated 12-year period. Note that the maturity of the bonds and options expiration you choose is equivalent to the “reset period” over which FIAs guarantee you will not lose money. However, there is no assurance that you won’t lose money along the way during that reset period.

To appreciate the promise of this approach, consider the fact that you would have lost money last year had you, in January 2022, started following the strategy used in the Edesess/Huebscher simulation, since both two-year corporate bonds and the two-year S&P 500 call option fell. But by the end of this year, you will, at a minimum, be whole again—and sitting on a nice gain if the stock market rises above its beginning-of-2022 level.
If two years is too long of a period for you to wait to be made whole again, then you should pick shorter-term bonds and options. As a general rule, your upside potential will be smaller with shorter-term maturities/expirations. This is because there is no free lunch: If you want greater profit potential, you must incur more risk.
When implementing this strategy, it is important to keep your tolerance for credit risk in mind. If you are particularly risk averse, you may want to choose Treasurys for

It is also important to consider the shape of the yield curve when implementing this strategy. If the curve is flat or inverted, you can secure a higher participation rate even when focusing on shorter-maturity bonds and call options with shorter expirations. With today’s inverted yield curve, for example, 1-year Treasurys are yielding more than 2-year Treasurys (5.06% versus 4.89%). So by constructing a bonds-plus-calls strategy with a one-year reset period, you can secure a higher participation rate over the next year than with two years. However, there is reinvestment risk at the end of the one-year period.