Equipping my children to be a blessing to others is one of my top priorities in life.
As part of this quest, I have had my daughter invest some of her money into a mutual fund. As I explained mutual funds to my beautiful seven-year-old girl, she immediately grew alarmed.
“I could LOSE some money?!?!?”, she exclaimed. This outburst was immediately followed by, “I am not interested in that type of investment.”
It was a very interesting discussion that helped me understand why so many people are financially stuck – they absolutely refuse to take any risk.
I know a couple that have budgeted their entire lives and have always lived within their means, but they are arriving at retirement with virtually zero savings. Why is this? Because they never prioritized investing because it would require risk and “they might lose some of their money.”
Many people jumped out of the stock market when it collapsed in 2008. They jumped out at rock bottom due to fear of losing it all. Those who remained in the market were generally financially whole within two years and have gained substantial ground since then.
Some people have said, “I would have been better off to leave my money in a CD instead of investing it into the stock market.” I ran the numbers on my investments and discovered that even with the drop of 2008, my investments were still way ahead of CD rates of return!
In fact, CD rates are lower than the inflation rate. Even if the CD interest earnings are tax-protected, the saved money will still lose overall purchasing power.
What are your feelings about taking risks with your investments?