The Fear Of Investing
Do you think if you invest your money, you are just simply going to lose it? Therefore, you say to yourself it’s just better if I do nothing. Have you ever heard the quote, “Damned if I do, damned if I don’t”. The first part of that quote is kind of what an investing choice feels like if you think you are bound to lose. So, we succumb to the fear of investing and think inaction serves us best. After reading this, you’ll see that the second part of that quote equally applies, but is overlooked. If you know what’s at stake with your money, you just might need to face your fear or damned you definitely will be in an economic sense.
Horror Stories
You have probably heard stories or maybe have personal experiences investing where you lost money. Stories about peoples 401K becoming a 201K after 2009 financial meltdown. So, that fear of investing seeds get sown that I’m just not going to invest in anything. However, these stories of loss are not the only stories you should let weigh on your mind. One of the wealthiest people in the world (Warren Buffet) is invested in the same stock market where peoples 401K became 201K. We should focus on that. The richest people in this world invest in something that they think will result in a positive return on their investment. So there must be something to investing that is not to be feared.
Silent Money Eater
During investing, there is a chance you can lose money, but that seems to be the only message everyday people hear. The other side not amplified enough is not investing you will lose money too! Moreover, that choice to not invest or under invest seems more acceptable for people who don’t understand that there is a silent money eater called inflation. The dollars you earn today are not worth what they used to be. In other words, you need more of today’s dollars to pay for the same stuff that used to cost less.
For example, in the 80’s gas was like $1.19 per gallon. Now, as of writing this, it’s $2.16 and has been as high as $6.00 in some places in US. Has anything changed about the constitution of gasoline in the past 37 years? No, it hasn’t. Another example, a house I rented in 2011 at $1100 now rents for $1400. It’s the same house. It cost $300 more than 6 years ago to rent the same house. Where are you going to find additional money to continually pay for goods and services that keep going up? Do you get paid wages adjusted for inflation? The answer is pretty much no. In fact the inflation adjusted wages are basically flat since 1970s.
So, if you feel holding onto dollars is safer for fear that investing them is losing proposition, it’s the opposite, over time they have lost purchasing power and continue to do so. You are in essence losing money all the time unless the return you make on those dollars out pace inflation. Inflation in US averages about 3%.
Investment Alternatives
Here are some alternative mechanisms to invest money and you can see which give you the best chance to make more than 3% on annual basis:
- Bank Savings Account – 1.4%
- Stocks – 7%
- Bonds – 2%
- Real Estate – 8%
There may be other alternatives not listed here, but there are certainly not any risk free options to choose from. So, get used to fear and don’t let it drive you to let your investment dollars sit on the sideline.
In Closing
So, these are some common options and if you are afraid to invest in any of these for fear of losing money, just know too you have lost already. The line I want draw is that you need to learn how to invest and not lose money and not be afraid too because you are definitely not safe if you don’t.
