Over the past 60 years, we've seen tremendous advancements in finance, largely due to deep academic research and the evolution of public markets.
These developments have given us clear insights into how investing can help achieve long-term goals, like maximizing retirement income, or saving for your first home. By understanding how markets work, you can develop a sense of optimism and confidence in investing.
Here are some key ideas to help embrace investing:
1. "I Don't See the Point of Investing?"
Any decision you make regarding your money - even choosing not to invest - is still an investment decision that involves both risk and reward. While you may be focused on the risks of investing, have you considered what you're risking by not investing? By not investing, you risk your money losing value over time due to inflation.
When you invest, the market allows you to tap into human innovation and earn returns on the progress and problem-solving happening around the world.
2. The Magic of Compounding
One of the most compelling reasons to invest is the power of compounding. If you don’t invest, you risk inflation eroding the value of your money over time. By investing early and consistently, even modest returns can grow exponentially. Albert Einstein once called compounding the "Eighth Wonder of the World" - and it’s true: An average 10% return can double your money every seven years.
3. "I feel too far behind to catch up"
It’s common to feel that you missed the boat on investing, but the truth is, it's never too late. Every day, the stock market is poised to grow. If you're not in the market, you’re missing out on the opportunity for your money to work for you.
4. Trust the Market, Not the headlines
When it comes to financial advice, it can be hard to know who to trust. Fortunately, you don’t have to trust anyone individually - you can trust the market itself. Market prices reflect all available information in real time, so there's no need to follow every prediction from pundits. Instead, work with an independent financial planner if you need additional guidance and planning.
5. "Is now a good time to buy, I heard it's going to drop next year"
Trying to time the market - buying at the right moment and selling at the peak - is not a reliable investment strategy. Even seasoned experts often struggle with this. Nobel laureate Eugene Fama proved that it's virtually impossible to pick the right stock at the right time. Once you commit to a long-term, diversified investment strategy, the worry about timing fades away.
6. Don’t Fear Market Downturns
Market downturns are inevitable, but they are usually followed by recoveries. A well-diversified portfolio helps protect you from the risk of losing everything. You’re much more likely to “lose it all” with concentrated investments than with a well-diversified portfolio.
7. Embrace Uncertainty
It's normal to feel nervous about investing. The stock market carries risk because it offers the potential for higher returns. Uncertainty is part of the process, but facing it head-on can lead to greater financial rewards. Stick to a plan and work with a financial planner who can help you navigate the ups and downs.
8. Diversify, Don’t Pick Favorites
It’s tempting to invest only in companies you're familiar with, but the stock market represents a diverse set of companies, all striving for innovation and success. Instead of trying to pick winners, a diversified portfolio across different sectors and industries increases your chances of success.
9. Financial Crises Are Part of the Cycle
History shows us that there’s always going to be another financial crisis - and another recovery. Every crisis has a different cause, so it feels different every time, but the market has always delivered a positive return once things settle down. Crises, by definition, are not predictable. Markets are forward-looking and remind us of the power of human resilience.
10. Start Small, But Start
Many people feel overwhelmed by investing, thinking they need large sums of money to get started. The truth is, the most important step is simply to begin. Consistently saving and investing small amounts can build into significant wealth over time. Start by directing a small percentage of your paycheck into savings and watch your money grow.
Conclusion: The Power of Investing
Investing might seem daunting at first, but the benefits far outweigh the challenges. Over time, investing in the market can help you secure a more comfortable future. Whether you start small or jump in with both feet, the key is consistency. Don’t let fear or uncertainty hold you back. .
At the very least, get a second opinion to make sure you're on the right track.
This is provided for educational purposes only, should not be construed as investment advice or an offer of any security for sale and do not represent a recommendation of any particular security, strategy or investment product.
Investments involve risks. The investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original value. Past performance is not a guarantee of future results.
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