Are You Willing To Take A Financial Risk?

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?

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  1. Jesse on March 10, 2012 at 7:01 am

    Investing is imperative. In my observation, many people have a fear about investing because they listen to others and are not educating themselves on investing, mutual funds / stocks /real estate. There is no easy route and you must be committed to managing your investment. It all takes time and there is no magic place to put your money where it grows without your direct involvement.

  2. Alan on March 10, 2012 at 7:20 am

    Rather then invest in mutual funds where there is almost always a load fee either to get in or get out. I would rather invest in ETF’s where there is usually no load fees. ETF’s act like mutual funds where they are a group of stocks. The other way to supplement your return if you own 100 shares of a stock or ETF is to sell a covered call against the stock or ETF. In essence you are renting out the stock. During market drops this also reduces the amount of your losses.

  3. Tameika on March 11, 2012 at 10:43 am

    I invest in my 401k and my husband has a 401k and a Roth, but honestly we don’t know what we are doing. I don’t know how to judge investments or pick what’s right for us. We are both incredibly lost. Where should we start to learn? Your blog has been very helpful.

  4. Freda on March 12, 2012 at 6:58 am

    I agree with Tameka! Where do you learn what is best and the expected gains/ loss/ and risks.

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