Over the last several months, as the stock market plummeted and then bounced around its lows, many people pulled their money out in fear. Americans withdrew $71 billion from stock mutual funds last October alone – but with the Dow now up around 20 percent since its low, there’s clearly some money to be made for investors willing to take the risk.
You have to take some risk to get return, says Bill Losey, a certified financial planner and frequent OTM guest and blogger. And while shying away from the market might protect you from some stomach-churning volatility, it won’t protect you from the little monster that is inflation, eating away at your money a couple percentage points at a time.
Did you know that if you were to retire today with $50,000 in income, even with a low inflation rate of three percent, you would still need $100,000 in income 20 years from now to beat it out?
The “cash is king” mentality won’t get you far on a long-term basis, agrees Tom Ruggie, certified financial planner and founder of Ruggie Wealth Management. Cash can drag you down like an anchor. By investing with some – some – degree of risk, you are far more likely to make gains than if you hide your money in the mattress and wait for the market to recover. But understanding risk is they key, because too much risk can lead to irrational, emotional investing decisions.
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S&P Index after a Downturn
10 Year Average Total Returns