In recent years, one of the main mistakes we see new investors make is that they think the stocks can only go up. This idea has turned very popular, and it may certainly appear to be true at times.
“Hey!” an overeager new investor tells non-investors. “Look at this chart; for the last 10 years, stocks have only been going up – it’s a big waste not to put in some of your savings and watch your money grow!” Of course, this sounds too good to be true, but the non-investors can’t help but be convinced and start their own investment account. Before you know it, the number of people espousing that stocks are only going up is multiplied.
Dips and down periods
The problem with this assertion is that every 5-10 years or so, we usually have major short-term dips in the stock market, and a bit less often than that, a shocking and long-term down period like we saw in the 1930s depression and 2008 crisis.
When people say that stocks are only going up, it makes others believe that they’re missing out on a whole lot of returns, when they’re actually missing out on a whole lot of risk. Generally speaking, the more you can earn in the stock market, the more risk you’re taking.
Start big and end small
For young people, this can be a good thing. Most financial advisors will agree that, if you’re a young person who wants to start a pension fund, you can afford more risk, and then gradually decrease the risk as you get older.
An added benefit of having more money available is that you can take up personal loans at a much better interest rate. On the loan comparison website https://lanfordeg.no/forbrukslan/lan-uten-sikkerhet/ in Norway for instance, it is highly recommended to have as good an income and fortune as possible when taking up loans, as this will help in making it easier to pay back and banks will give you better rates because its less likely you won’t be able to pay them back.
Starting off with big risks can be a good idea because, in our twenties, we don’t plan on using our money for the next twenty to forty years, and therefore we can handle the volatile nature of the stock market.
Shorter time horizon
Most people, however, can’t afford to make the same bet. They simply don’t have the option to invest, using the same time horizon, as they might be needing the money during the next 5 years or so. Keeping the 5-10-year dips in mind, wouldn’t it then be poor advice to say that the stocks are only going up, when in fact, the new “old investor” needs their money during one of these dips?
Like the laws of reaping and sowing, it’s important to recognize that the stock market isn’t only going up, but has to go down at times to make the upward curve sustainable. It’s also better to realize this fact when times are good, as it would be awful to discover it when times are bad and we’re in the middle of a bad situation.
Just a short post we felt to write this weekend to give some of our investors and readers a different perspective.