Written by R. A. Stewart
“Never invest in the share market which you cannot afford to lose” is a saying that you may have heard a few times but is it good advice?
It all depends on what you are going to use the money for and how soon you need the money.
If the money is in your retirement fund and you are in your twenties or thirties then you will not need the money for another thirty or forty years and even then you may live another thirty or so years so the money won’t be needed for decades. A share market tumble will not make any difference to your current lifestyle.
You have time on your side to recover from the lows of the markets.
If however, you are saving for a house deposit and require the money in less than five years then being a little more conservative with your money may be the way to go.
The worst thing which can happen is for you to withdraw your money for a house deposit just when the markets are down and then a month or two later the share markets have rebounded.
It is all about taking a balanced approach.
There is no doubt that many investors are afraid to lose their money so they invest their retirement funds conservatively. The end result will be that they are left short-changed when they reach 65.
Worst still, they react emotionally when the markets take a dive and shift their funds from balanced to conservative, then when the markets rebound they miss out on the rises which would have seen their retirement fund recover.
It is time not timing which is the key to creating wealth in the share market. Young people have an abundance of time on their side and the young astute investor can use this to their advantage to create their wealth.
Inflation reduces the spending power of your money and just leaving your money in the bank will erode the value of whatever is sitting in that account. If money sitting in the bank is for everyday expenses or an emergency fund then that is fine, but to get ahead one needs to become a long-term investor.
Your risk-profile is the factor which should determine how much risk you should take. Your age is one factor. New Zealand financial advisor, Frances Cook, says, “Subtract your age from 100, and the answer is the percentage of your money which should be in shares.”
I do know of people who have a much larger percentage of shares than Frances Cook’s formula suggests they should have. One elderly couple I know invests in the share market for the dividends which they use to pay for their health insurance.
It is for investors to decide what level of risk they are willing to take and to take responsibility for decisions they make.
Investors must get over their fear of loss in order in order to make the most of the investment opportunities available. Playing it safe in the matter of finances and life in general will leave you feeling short-changed, when with a few more risks you would have achieved more with your money.
About this article
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