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.
1. I diversified my portfolio
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.
2. I reminded myself that I wasn’t investing on a short-term basis
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.
3. I realized how risky it was to not invest in stocks
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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