21 Mar Investing For Beginners: The Biggest Risk Is Often Not To
Even as an investment expert, I’ll have to admit that it can appear intimidating – even risky – to start investing as a novice. Tune to any financial news channel, and you’ll often hear predictions about an impending market crash. Look to the “experts” on Wall Street, and you’ll hear plenty of jargon, and often think that investing is something you’ll never understand.
However, investing for beginners doesn’t have to involve high-stakes risk or confusion. In fact, as I’ll explain, the biggest risk is often not investing:
The risks of not investing
When it comes to putting your cash in a savings account, your hard-earned wealth might be physically safe, but its actual value isn’t. You may have heard of inflation in passing; what that actually means is that your wealth is slowly losing its purchasing power. Think: buying a Coke for a few cents decades ago versus spending almost two dollars now.
The historical annual rate of inflation is 3%. While this might not seem like a big deal over a year or so, it can seriously eat into your savings over time. Over just three years, it can account for almost ten perfect of your savings account wasting away.
How to start investing for beginners
So now that I’ve covered the risks of inflation, let’s take a look at the other option – investing for beginners, and thus growing your wealth. Contrary to popular belief, investing doesn’t have to involve perfectly timing when you’ll buy/sell investments, or being a math whiz who knows the next surefire stock pick.
When viewed in the short-term, the stock market is very risky. Even for professional investors, the numbers don’t lie: timing the market this way rarely works out. It’s when you take a step back and look at the bigger picture that you’ll see the beauty of investing.
Over the long-term, the overall stock market has tended to trend upwards. Over a longer-time frame, you’ll see that it has always gone to reach all time-record highs, despite any cataclysmic event. With a long-term, diverse investment strategy, you have the chance to see your wealth grow instead of shrink.
Your first steps
For starters, consider opening up a Roth IRA or 401(K) with some of your savings to give your wealth a chance to grow. If you’re considering an advisor to help, that’s easier than you think too – check out my guide on how to choose the right one.
If you found these tips useful, be sure to check out my firm LexION Capital’s blog for more helpful articles on investing.