I’m going to keep it short and sweet this week. But I hope that the length doesn’t make you think any less of the topic. Take my word for it, it’s important.
We all have seen and heard horror stories about 2008. We know that a lot of people lost a lot of money in the stock market. Consequently, we know investing comes with many risks (especially bad investments). But what is the risk of not investing?
If you decide not to invest and just save in an average checking or savings account, you are giving inflation permission to start gnawing away at your money every year. Because of inflation, $100 dollars today will only be worth $97-$98 a year from now. It is basically a guaranteed loss (which can be a very bad thing if your retirement funds are involved). Can you also lose money in the stock market? Definitely, especially in the short term. But we do know that if we average the last 50 years of stock market returns, it would be right around 10%. This means that despite all the ups and downs during that time, stocks have been a great investment.
Where people get into trouble is when they aren’t prepared financially or emotionally to wait out a storm (or another 2008). The average investor invests when times are good (when stocks are up) and sells when times are bad (when stocks are down) and they repeat the process until they are either broke or too scared to invest any more. This doesn’t have to be you. You can break the cycle today.