Save and Invest

If you're afraid to invest in the stock market, do this calculation to see how much money you're losing out on

Chad White | Twenty20

It's no secret that Americans have a lot of anxiety when it comes to investing, especially after the 2008 financial crisis.

But that fear isn't helping, and in some cases, it may actually be holding you back. Only about half of American families are participating in some way in the stock market, according to research from the St. Louis Fed. When it comes to millennials (ages 23 to 38), about 60% have no direct or indirect exposure to the stock market.

Of course, you don't definitely don't have to invest, Erin Lowry, author of "Broke Millennial Takes on Investing," tells CNBC Make It. It's not a life requirement. But you should understand what you're losing out on if you avoid the markets.

It's a shocking amount, Lowry says. "You're going to have to save so much more money to achieve the same goals because the market is helping do some of the work."

That's because when you use a high-yield savings account or an investment account with higher returns, you put the magic of compound interest to work for you. When your money earns returns, those returns also generate their own earnings. It's a simple, but powerful way to grow money at a much faster rate than simply saving. The Securities and Exchange Commission has a helpful calculator that can show you how much you'd earn.

The longer you leave your savings in the market, the more compound interest can help because the returns continue to build on themselves. Conversely, doing nothing can cost you: Millennials may lose out on $3.3 million in retirement savings if they avoid the stock market entirely, NerdWallet estimates.

Let's say you have $1,000 and add $100 a month to your savings over the course of 35 years. At the end, you'd have $43,000. Not bad. But if you had invested that money and earned a 10% rate of return, which is in line with average historic levels, you'd have over $370,000.

To achieve the same outcome by simply saving, you'd have to put away roughly $900 a month over the course of 35 years.

Of course, investing is not risk-free. Typically, investors see some years where they earn double-digit returns and other years where they experience a loss. Losses happens, on average, about one out of every four years, and can be bad. During a bear market — which is when stocks fall by at least 20% — research shows that the market drops by an average of 30%. That condition typically lasts for about 13 months.

That means if you invested $1,000 and the market lost 30%, your investment would be worth $700. And it may take you more than 13 months to recover the $300 you lost.

But even if you're worried about the markets right now, simply pulling your money out may not be a great solution. In fact, experts say the best long-term game plan is to keep investing, especially if you already have a 401(k) or other type of retirement account.

"I would not start cashing out of a 401(k) and buying gold bars that you're burying in the backyard," Lowry says.

Instead, make regular contributions to your retirement accounts part of your routine, such as putting $100 aside every two weeks. This is actually a strategy that experts call dollar-cost averaging. It's great for investors with a long time horizon because it takes emotion out of the equation because you're continually investing, week after week, no matter what the market is doing. Plus, it keeps you from selling out during market lows and buying in at market highs.

Don't miss: To retire at 65, millennials will need to save nearly half of their paycheck

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