Making Money Moves

Is Investing Risky AKA Will I Lose All My Money?

We get asked this question a lot! So let's break down what it means to invest and what it means to take on risk.

Investing your money can be risky, but the biggest risk of all is not doing anything with it. 

A lot of our friends and women we meet ask us, “Is investing risky?” Maybe you have this question, too. They’ve heard stories about people putting all their money into some investment or asset, only to walk away with nothing. Or the media is shouting about some crash - CRASH CRASH - and warning us of some impending doom of losing all our money in the stock market.

You can manage the risk of investing by putting your money in multiple places with different levels of risk involved.

So is investing risky? Yes, investing can be risky and yes, you can lose money from investing. Now before you walk away, hang tight - big BUT coming here - not all investing is high risk. There are ways to invest that involve taking much lower risks than others. If you pay attention to these and focus on the two key points outlined below, then investing often outweighs the risks associated with leaving your money in a savings account where it’s sitting there doing nothing. Don’t believe that it’s safer there, either - because it’s not. 

There are two key things you can do to manage the risk of investing: 

  1. Long-Term Focus
  2. Diversify 

Investing your money over the long-term can help to manage the risks that come with investing.

The risks that come with investing include the inevitable ups and downs that occur in markets, especially when you look at investments in the short-term. Take the world we’ve lived in over the last two years, and the volatility that’s come with some companies listed on the stock market. Hello Peloton - you BOOMED over that time! Others (you’ll be back United), fell through the floor. But let’s be honest, the travel industry will make a comeback in the future, and probably hard, and as some may have predicted there’s only so many home workouts people are willing to do. (Peloton has seen a slump more recently and even had to lay off some employees - YIKES what a ride! **puns always intended.) 

If you only look at two or three years, then yeah, you’ll see some scary stuff. But, if you stay calm and invest your money for the long-term, it will likely ride out these waves and grow over time (*We’re not financial advisors so this is a guide based on historical data and fact checking from professionals.) When you’re ready, in however many years, you can sell and reap the rewards. This, our friend, is called managing risk. 

Consider managing the risks of investing by putting your money in different assets, industries or locations. It’s about diversifying to try and outrun those risks that come with investing.

Diversification is another way to manage this risk thing. It works really well if you combine this with long-term investing. Instead of putting all your eggs in one basket, like you would if you invested all your money in the same industry or in the same asset (like a stock), you invest in a few. That way if something goes cray-cray with one, the others can balance things out.

There’s a number of ways you can diversify when it comes to investing. 

Alright, let’s look at the real world to explain this. Say you have a house, some American Airlines stock, and a couple bars of gold. In 2020 -21, the housing market boomed, American Airlines’ stock value fell, and gold stayed relatively stable. If you had ALL your money in American Airlines, it would have been a pretty rough year. But you’re a smarty pants, and you’re ok. Your portfolio is balancing out because you’ve focused on DIVERSIFICATION. 

This example also teaches us something else. Diversification isn’t just about buying different types of assets willy-nilly. It’s also about buying assets that will behave differently depending on what may happen in the world. If, for example, fracking were outlawed, or bitcoin’s value was suddenly nothing, would all your assets react the same? To actually be diversified, and feel it’s full benefits, you want assets that would react in the opposite way, too.

Now we want to be clear; it’s totally up to you how much risk you want to take. If you already have some more low-risk investments working for you and you want to look at other things, cool. Just make sure you have your basics in check first. We’re talking retirement accounts, emergency pots and low risk funds. After that, if you have spare money, then by all means learn about doing more. It’s also worth noting that the longer you plan to invest (aka the younger you are), the more risk you can afford to absorb. Not to be a broken record, but we’re broken records and long term, these ups and downs can often sort themselves out. 

Are you’re still wondering if investing is really worth the risks?

Here are two REAL-LIFE scenarios for you to think about…

Scenario 1:

Say you took $10,000, invested it in March 1991 for 30 years. During that time we saw the US in recession and unemployment reaching 6.8% (even higher than today; in Aug 2021 it was 5.2%). We also witnessed terrorist attacks, the dot-com crash, the global financial crisis, and a pandemic. Phew, wow, we really are pretty resilient beings. Despite ALL of that sh$t - that $10,000 (including earning each year put back in) grew to around $180,000.

Scenario 2:

Now let’s say you took $10,000, invested in December 1969 for 30 years. The Vietnam war still has some time to go and there are big demonstrations happening against the draft lottery that began earlier that year. Inflation is on the rise and the coming decade will bring TWO energy crises, Watergate, two recessions - and DISCO. YET, in 1999 that $10,000 (including earnings reinvested each year) will have grown to around $443,000. 

So now you can see, even with all of these massive world events going on, over the long term - THE MONEY STILL GREW! Think about this article the next time you wonder just how risky investing actually is.

Peace out. 

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