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Published on Sept. 18, 2023
By: Maurie Backman
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These days, I hold a variety of stocks in my brokerage account and retirement plan. But that wasn’t always the case.
There was a time in my life when I opted to stay away from stocks and instead put my money into safer investments, like bonds. I also intentionally kept a lot of my money in plain old cash beyond what I needed on hand for surprise bills.
The reason I shied away from stocks for a while was simple: I was scared. I knew that stocks carry a lot of risk and I didn’t want to see my hard-earned money get flushed down the drain.
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But thankfully, I quickly learned to move past my fear of stocks and embrace them instead, despite the risks. Here’s how I did it.
There’s never going to be a guarantee that you won’t lose money in the stock market. But one way to mitigate that risk is to maintain a broad mix of investments. I’ve made a point through the years to invest in a range of companies and industries, and that gives me some peace of mind.
Let’s say you only invest in tech stocks, and that industry takes a dive. Guess what? Suddenly, you’re seeing a lot of red in your portfolio. But if tech stocks only comprise 15% of your portfolio, the damage shouldn’t be as bad.
If you find the idea of hand-picking stocks across different market sectors too time-consuming or intimidating, you can always load your portfolio with S&P 500 ETFs, or exchange-traded funds. That way, you effectively get exposure to the entire stock market (which the S&P 500 is generally considered to be representative of). You can also invest in sector-specific ETFs if you want to focus on certain corners of the market, like energy or healthcare companies.
If you’re investing in stocks with the goal of cashing out your portfolio in a few years, you might lose money — and a lot of it. But that was never my intent.
Rather, when I started buying stocks, I knew my plan was to hold them for multiple decades since I was investing for my retirement. And I realized that gave me plenty of time to ride out a string of stock market downturns.
Over the past 50 years, the stock market has rewarded investors with an average annual 10% return, as measured by the S&P 500. But that doesn’t mean the market did well every year during that time.
In fact, since 1972, there were three years when the stock market lost more than 20% of its value. But there were also 19 years when it delivered returns of 20% or more. That 10% is an average, but it should give you comfort because it accounts for periods when the market did very poorly, too.
Before I started loading up on stocks, I was largely making around 4% or 5% a year on my bond portfolio. And I thought that was pretty good, until I realized I might score twice as high a return by loading up on stocks. I also realized that avoiding stocks carried a less obvious risk: not meeting my savings goals by limiting myself to lower returns.
Let’s say you’re able to save $200 a month for retirement over 45 years. If you’re able to score an average yearly 5% return on your money, you might end up with around $383,000. That’s a decent nest egg to bring into retirement.
But what happens when you replace that 5% return for the 10% return the stock market has delivered over the past half-century? Suddenly, you’re looking at a nest egg worth over $1.7 million. Wouldn’t you rather retire on that?
The idea of owning stocks can be very intimidating. And it’s natural to be nervous about it. But if I can move past my fear of investing in stocks, so can you. And with any luck, getting over that fear will mean setting yourself up for a comfortable retirement down the road.
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Maurie Backman writes about current events affecting small businesses for The Ascent and The Motley Fool.
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