Are you investing as if risk is real?
I was listening to one of my favorite podcasts, and the guest was talking about investing. He had one main point he was driving home. He said never to sell your investments because of the fear of losing. He went on to say just stay invested because the market always comes back.
This is pretty basic advice given by the Pop Culture Finance Community, and nothing really new or earth-shattering. Have you really given much thought to that advice? Does that mean investing in the stock market is free of risk? After all, if it always comes back, then you can never lose – right?
You can back up that advice with a chart of the stock market. That chart would show that the stock market always comes roaring back. If you sell your investments, you just took yourself out of position to be a part of that comeback. Pop Culture Finance has loads of stats and evidence that would confirm you are 99% sure to miss the comeback if you sell today. Thus, if you stop right there and buy into this theory, you also have to buy into the theory that the stock market is risk-free. If the market always comes back, that, in theory, eliminates risk.
Now you know, and I know, that the market is not risk-free. Risk is real. However, we are taught to invest as if it isn’t real with a stay invested no matter what attitude.
The problem is depending upon the market always going up doesn’t always work in real life. Someday you will need that money. If the stock market rollercoaster decides to go down in a prolonged bear market when you are near retirement, starting retirement, or during retirement, you could have a big problem on your hands. Given the length of retirement, it is a distinct possibility that it will happen.
If you buy into the theory that you are ok because the market always comes back, you will stay invested during a time when managing for risk is critical to your financial future. Further, staying invested and riding it out is the only investment strategy that you know.
I wish investing was as easy as Pop Culture Finance makes it seem. The reality is you need to invest as if risk is real and learn how to manage for risk. It is a key to long-term investment success!
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