My IRRATIONAL Fear – Short term market collapse

You NEED to understand that the market is risky, in the short term, but so is every other place to put your money, including under your mattress (inflation risk!). – Axel Hoogland (yes I quoted myself)

My IRRATIONAL fear is a short term stock market collapse (meaning stock prices go down for a year or 2, similar to 2008 market collapse) (Learn about what the stock market is here).I am afraid of this because I am continually telling people to invest their money in the stock market. Most people are already invested in the stock market (but don’t know how their money is being managed or what exactly they are invested in). Some are only invested in bonds (which is risky as you are losing money to inflation). Some will pull their money out of the stock market at the first sign of trouble or market dip, which happens often (dips) but usually the market recovers quickly and they would lose on the gains. When investing in the market people should always ask themselves “What do I need this money for?” You NEED to understand that the market is risky, in the short term, but so is every other place to put your money, including under your mattress (inflation risk!).

My greatest fear is being wrong. I hate to give people incorrect information. It is ok to be wrong on some things. If you recommend someone eat at a restaurant they will be upset with you if they don’t enjoy it they will choose to never eat there again and might just stop taking your advice on restaurants.

If you recommend something to do with investing people’s money, something that they don’t completely understand themselves, and they seem to lose money (even if it is only for a short time and then it comes back in a year or two) they may hate you forever. People will be sure that there was a better option for them to invest their money in. They will not know what that option was, but they will be sure it was better than following your advice.

Someone is is almost always better at doing something for you than you will be at doing it for yourself. Some things require training to learn how to do. Many people do not feel comfortable fixing their own car. They take it to an expert, a mechanic. They don’t feel they have access to the right tools or knowledge (and that’s often true) so they pay someone to do it for them.

Unfortunately many people are happy to let an “expert” manage their money, for a large fee! The problem is these people are not experts, they are “salespeople”! You don’t let the car salesman fix your car and you shouldn’t let a “financial salesman” manage your money. The truth is that as a whole all fund managers will underperform the stock market. This is because of the fees they charge and because they are bad at guessing (yes they are guessing) which companies will perform better than average on any given year. Whenever someone sells a stock remember someone is on the other side of that deal guessing that that stock is going up! As a whole, all managed money will underperform (measured by percent returns to clients after fees) the total amount of unmanaged (index funds) market. Certainly some money managers will pick good and outperform the market and many will underperform and pick worse stocks than the market average, but all charge high fees. That is why index funds generally are the best place to put your money. To further diversify you should put your money in a Target Date fund which automatically transfers your money to bonds (safer investments) as you reach retirement.

A question people often ask is

Q.The stock market is high, should I pull money out of the market?

A. I ask them “What will you do with your money it if you do “pull it out” of the stock market?” The stock market should always be at the highest it’s ever been because the world is growing in population, thus businesses are making more products to sell.

As Mr. Money Mustache recently posted about, there is always a recession coming, so instead of worrying about it, it is better to understand what might bring it about, understand what you are investing in and why, and ride the storm out. A benefit of all this is that if people understand what causes recessions, over spending followed by underspending, we (may) be able to avoid wild cycles and instead keep a nice steady rise in abundance in the future, that is my hope by helping to educate people on “The Stock Market”.

Now that I’ve shared my fear with everyone, and why it’s not a rational fear, you should continue to learn about investing and why it is probably one of the most important things you can understand for yourself and for the world. You can learn more about Target Date Funds (where everyone should start investing) from this post or this video.

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