Making smart financial decisions is something that everyone strives for, but it’s not always easy. Many people avoid investing in the stock market because they believe it’s too complicated, or they fear losing money. However, not investing at all may be riskier than trying to invest.
Ups and Downs of Investing
Investing involves ups and downs, and complaints are common during market downturns. However, not investing may be a riskier financial move than investing. Between 1928 and 2021, investors experienced a bear market 22% of the time, with stocks losing an average of 36%.
On the other hand, between 1928 and 2021, investors experienced a bull market 78% of the time, with stocks gaining an average of 114%. By sitting it out, you’re not taking advantage of all the bargains that can be found while the market is down.
Reasons Why Not Investing May Be Dangerous
Retirement can be expensive, and unexpected expenses may arise. A study by RBC Wealth Management shows that the projected lifetime healthcare costs for a 65-year-old couple who retired in 2021 is $662,156.
A portion of the healthcare cost will go towards insurance premiums, but it’s still a significant amount of money. Building up savings or investing in CDs may not be enough to cover the expenses. Diversified investment portfolios historically provide the growth needed to cover retirement expenses.
Quick Decisions Can Be Risky
Quick and conclusive decisions are a human habit that can be good but also bad. Making snap decisions can make it difficult to go back and rethink the situation. When it comes to investing, making a hasty decision could lead to missed opportunities. Not investing at all is riskier than trying to invest.
The Importance of Educating Yourself Before Making Investments
New investors often struggle with making their first investment. Familiarizing yourself with one investment term at a time is a great way to get started. According to Warren Buffett, the danger arises when one lacks knowledge about what they are doing.
Building wealth is off the table if you’re unwilling to learn enough to take the mystery out of investing. Investors never stop learning, and no one knows it all.
A List of Investment Terms to Understand
When it comes to investing, the first step is understanding investment terms. Start by making a list of investment terms you need help understanding. It doesn’t have to be anything fancy – a simple list will do. Some essential terms to get you started include bonds, asset allocation, exchange-traded funds, index, market capitalization, and price-to-earnings (P/E) ratio. Seek out the most straightforward explanations you can find and learn about them one at a time.
Take the Time to Learn
It’s crucial to take the time to learn about investing before making any investment decisions. A hasty decision could lead to missed opportunities, and investing in something you don’t understand could result in significant financial losses. However, with a bit of effort and dedication, investing can be a rewarding experience. Avoiding the market because of fear is like assuming something without getting all the facts.
Investing is not always easy, and it can be intimidating for new investors. However, not investing at all may be riskier than trying to invest. Retirement can be expensive, and unexpected expenses may arise. Building up savings or investing in CDs may not be enough to cover the expenses. Diversified investment portfolios historically provide the growth needed to cover retirement expenses. Take the time to learn about investing and start by familiarizing yourself with investment terms. Remember, investors never stop learning, and no one knows it all.
