Investing
Market risk is a scary thing, but there is another risk that does far more harm to your money. What is it and how can you combat it?
Market risk is a scary thing, but there is another risk that does far more harm to your money. What is it and how can you combat it?
That risk that does more harm to your money over time than market risk is inflation risk. That “hidden” monster gradually eats your money little by little by little as the cost of goods and services goes up. The way to combat this issue is to garner positive real returns on your money.
Real return? The nominal rate of return (earning .1% in the bank for example) + the inflation rate = the real return. To stay ahead of that inflation monster, you need to get your money working for you so the returns beat the yearly inflation rate. The best investment to do that over the last 90 years has been stocks and it’s not even close.
Taking on market risk (the ups and downs of the daily speculative markets) will give you the returns you will need to outpace inflation. Focus on owning low cost no-load index mutual funds and keep feeding those accounts through good times and bad. Wealth to follow!