Don't abandon sinking stocks; adjust your expectations

— -- Q: The $3,000 I invested in my Roth IRA is now down to $2,100. Should I give up and put my money under the floorboards of my house?

A: The fact that you're ready to give up on investing after losing $900, or 30%, tells me you weren't prepared for the risks.

As Ask Matt readers are reminded almost daily, investing is a risky proposition. The stock market can swing wildly and without reason or notice. Your stocks can lose 40% or more of their value in a week or less, just when you might need the money for a home down payment, college tuition or rent.

Let's get more specific. Had you invested in shares of large U.S. companies over the past 10 years, you would have subjected yourself to some stomach-churning ups and downs. Over that period, there was a 68% chance your investment would rise as much as 16.8% or fall as much as 14.9% in any given year, according to IFA.com.

But you lost 30% on your investment. How can that be? Using statistics, and observation, we know that extremely bad or extremely good years are possible.

Again, using stock data since Jan. 1, 1998, we know there is a nearly 16% chance you could suffer a 30% or greater loss in a year from shares of large U.S. companies. That's a nearly 2 in 10 chance.

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Those are actually pretty good odds in your favor. And the rewards of investing, as you probably know, can be very enriching. If you're still feeling uneasy about being a stock investor, you need to ask yourself a few questions:

1. Am I invested correctly? If you can't bear the fact that in nearly 2 out of 10 years you might lose 30% or more, you need to think about what you're invested in.

Perhaps you're too exposed to stocks. For instance I.O.U.'s issued by the U.S. government, called Treasury bills, notes and bonds, have been much less volatile over the years. Instead of giving up on investing, maybe you just need to add more stable investments, like bonds, to the mix.

2. Am I over-invested? You'll probably roll your eyes hearing this, since it's repeated so often, but money invested in stocks needs to be long-term money. The stock market can be brutal, and you need to not fixate on year-by-year movements. Being patient is really only possible if money invested in stocks isn't money you're going to need for a while.