Can you go negative in the stock market?

[leighangela]

Sorry if this is a stupid question, but....

If you open a Roth IRA and it goes down, can it go down into negative numbers, so you in fact OWE more money than what you already put in?

[Inkstain82]

Sorry if this is a stupid question, but....

If you open a Roth IRA and it goes down, can it go down into negative numbers, so you in fact OWE more money than what you already put in?

No. When you put money into the stock market, you are buying a piece of the company. Although the accounts will show a "balance" in dollars, that is just their estimate of what the market would pay for all the pieces of companies that you own. The worst that can happen is that the value of those pieces becomes zero, i.e. nobody wants to buy them from you for any price.

The only way to owe more money is to utilize some sort of borrowing, as in margins or short-selling.

[leighangela]

Thank you!

So then, if you take money out of your IRA, you are selling?

[Inkstain82]

Thank you!

So then, if you take money out of your IRA, you are selling?

Yes, you will sell it at the current market value.

[leighangela]

OK another dumb question....what if no one is buying?

[Inkstain82]

OK another dumb question....what if no one is buying?

If you attempt to sell at the going market price and everyone stops buying at that price, you can attempt again at a slightly lower price. That's how the prices move up and down. If no one ever buys again, then the asset is worthless.

[disneysteve]

So then, if you take money out of your IRA, you are selling?

Be careful here. There are two ways to answer this question. You can sell an investment within your IRA and keep the money in the IRA either in a different investment or in a cash account like a money market or buy a CD. The other option, which should only be used in a dire emergency, is to actually withdraw money from the IRA. Assuming you are not yet of retirement age, this will trigger substantial penalties and taxes and, as I said, should not be done unless absolutely necessary.

OK another dumb question....what if no one is buying?

If you have the misfortune of owning an investment that has essentially become worthless, you're out of luck. I currently own a stock that is trading so low that selling it would cost me more money in commission than the stock is worth. So it just sits in my account. If it ever recovers, great. If not, it's basically worthless.

[maat55]

Buying on margin can put you negative, so don't ask how to do it.

[maat55]

If you attempt to sell at the going market price and everyone stops buying at that price, you can attempt again at a slightly lower price. That's how the prices move up and down. If no one ever buys again, then the asset is worthless.

Not true, if a stock never gets bought or sold, you can recieve dividends and capital gains through company asset increase. You only loose when the company bankrupts or looses value and gets bought out.

[boosami]

Not true, if a stock never gets bought or sold, you can recieve dividends and capital gains through company asset increase. You only loose when the company bankrupts or looses value and gets bought out.

Actually, it's more like the opposite.

In a merger or buy out, shareholders are typically awarded some of the buying company's stock. For example, PNC bought Nat City and if you own Nat City shares they will not be worthless. For every ~25 Nat City share you own, you will receive 1 PNC share. In effect, when companies merge so do the stocks.

When a company goes bankrupt, they are forced to liquidate their assets to pay off debts. Shareholders are one of the parties that receive funds from that liquidation. So, often times even if a company goes bankrupt the shareholders receive some compensation.

...And a company so worthless that you can't sell their stock is probably not in a surplus position to offer dividends to shareholders. You're actually better off hoping for bankruptcy or a buy out.

[jIM_Ohio]

maat had the best answer- IMO.

YES you can owe money if you borrow money inside the IRA to invest. This is known as margin.

Some mutual funds might use this technique, but you would not owe more if the mutual fund ran into same issue as an individual investor. Most mutual funds do not use margin.