Many people are afraid of investing in the stock market. People tend to fear what they don’t know. It has been proven that the level of fear that people have for losing their money is higher than the level of joy people have when making money.
However, knowledge is power and an informed investor that can keep their emotions in check knows that history will tend to repeat itself. There is countless empirical evidence proving that over time the stock market outperforms the rate of return in a basic savings account and conservative investments like certificate of deposits (CDs), guaranteed investment certificates (GICs) or a basic savings account. So why do people pull their money out of the stock market and into “safe” investments every time the market starts to fall? Well, it’s called the recency bias. The theory that people have a tendency to believe that what has happened in the recent past, will also happen in the coming future.
My husband and I both work in the finance industry. I have learned a lot from my husband about investing in the stock market, technical analysis, dividend re-investments (DRIPS) and other financial strategies.
I leave you with one food for thought. The inflation rate in Canada at the end of 2015 was 1.61%. To put in a different way, if you had $100,000 in retirement savings in Jan 2015, and you wanted to be able to purchase $100,000 worth of stuff by the end of 2015 (Dec 2015), it would need to be at $101,610 by the end of the year. So if your long term savings is not in an investment that will at least meet inflation each year, you are losing money by losing your purchasing power.
To see how inflation works and how it can affect how much your money is worth over many years, check out the Bank of Canada’s inflation calculator.
Takeaway: We tend to fear what we don’t know, or don’t understand. The same is true for investing. Minimize your fear by empowering yourself with knowledge.