What is risk? The dictionary defines it as; “exposure to the chance of injury or loss.” In the case of the stock market it would be the risk of loss. Many people are afraid to invest because they fear losing their hard earned money. That is understandable. However, that fear has to be understood. I notice that most of that fear is from not knowing enough about the stock market.
Before I talk further on the market, I want to point out other risks that people are taking by not being in the market. If you keep your savings in the bank, it is secure up to the FDIC of $250k—that is it. The interest rate you gather there these days is less than 2%, if you get that much. Other investments that guarantee principle don’t make enough money to overcome inflation or taxes. Inflation has historically run about 3-4% annually. That means you are losing purchasing power by leaving your money in the bank. That is risky.
Inflation, to put it simply, is the rate at which your money’s purchasing power erodes. That is why the prices of items you purchase continue to increase in price. Years ago I could buy a slice of pizza and a drink for a dollar. Good luck finding that combination for lest then 5 dollars today.
Then at the other extreme of the pendulum is individual stocks, day trading, options trading, etc. If you don’t know what options trading is, don’t worry. It’s worse than gambling. That is too much risk. Risk of losing it all and risk of a broker making you trade excessively. No one has the time to keep a watch on the market everyday individually. It will become a job in itself. Even the Bible tells us in a sense not to keep all our “eggs in one basket.”
“Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.” (Ecclesiastes 11:2)
The happy medium in which you earn enough interest to combat inflation, but don’t take the risk of individual stocks, is mutual funds—growth stock mutual funds. Here is how they help you mitigate risk.
You can find funds that, since their inception, have earned 10-12% annually. That helps beat the risk of inflation. They are diversified enough, between 40-250 companies within the fund, so all your eggs aren’t in one basket. The historical graph of the stock market shows that despite its dips it continues to go up. Being in the market is the only way you’ll retire comfortably—without having to depend on only the meager income of social security. You don’t want to risk missing out on a comfortable retirement!
Learn here how mutual funds work. How Mutual Funds Work.
If you have questions don’t hesitate to ask here. Take charge of your money!
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P.S. Day 314 please pray for the 7.2 million goal for 2020