Nope. I’m not throwing a riddle at you today.
In my never ending crusade to rid the world of the FEAR of investing I am throwing out some mind tricks/facts about how money is really lost.
I can’t count how many times I have heard people say the “stock market isn’t for me” (Hi Mom!) or “It’s too risky, I know a guy that lost everything” (Hi Father in Law!). But it’s time to flip the switch and show people what they really should be scared of.
Uncertainty = Fear
I get it, we like to know what it is going to happen. That is why everyone’s blood pressure rises when the check engine light goes on. It could be a $50 routine check up or a $5,000 “Engine no worky” situation.
What I don’t understand…… Why doesn’t a Scary Certainty = Fear?
If You Spend, You’re Down
Perhaps the quickest way to lose your money is spend it as it comes in.
Poof…..The second you swipe the card or hand the cash over, that money is 100% gone. I haven’t heard of an investment going to zero same day (unless you were incredibly unlucky and bought Enron the day it died). If you are index fund investing, I will make a very bold prediction:
It will NEVER happen.
and if it does, we will have bigger problems on our hands.
There is also a way to lose WAY over 100% spending money. It’s called Debt (and is one of the Scary Certainties I mentioned earlier).
Using my credit card as an example – making the minimum payment according to my cards terms
- Statement Balance: $3,114
- Interest Rate 17%
After 107 months, we would have paid $2,165 in interest. Essentially turning a 100% loss into a 169% loss.
The general perception of debt being ok or “normal” vs the stock market is a “scary place” shows how little financial knowledge is out there.
Are people really ok making someone else rich?
If You Only Save, You’re Down
I wish I could go through this site and replace the word “Save” with “Invest” for 99/100 occurrences. As soon as we hit our Emergency Fund goal of $10,000, every penny we “save” is actually invested.
Money saved in a standard checking or savings account is losing purchasing power every year. That beautiful rule of 72 that doubles our money, also doubles the cost of everything we buy (albeit at a much slower rate).
Inflation is the enemy of idle cash.
$10 in 2007 has the same purchasing power as $11.90917 in 2017.
The total inflation rate from 2007 to 2017 is 19.09167%.
The average inflation rate from 2007 to 2017 is 1.76259%.
A .05% interest in a savings account or even 1.2% in a high yield savings account can’t keep up with the average inflation rate. Cash becomes less powerful over time.
If You Invest, Even When You’re Down, You’re Up
You may be down after the first year.
Or the second year.
Or even the fifth year.
But if you have a 50% paper loss, you still have 50% more than if you spent it. AND your money has upside potential instead of slowly losing purchasing power.
To date, looking at the history of the market, the only way to lose is to sell and turn those paper losses into real ones.
Dow Jones since inception:
If you take a long term approach, there aren’t many stretches where you would be down on your initial investment for a very long time. Especially if you consistently invest and dollar cost average into the market.
Should more fear be placed on spending and debt than investing in the stock market? Why do you think people rationalize debt so easily but fear losing money in the stock market?