This ‘Safe’ Investing Strategy Is an Even Bigger Risk Than Stocks. Here’s Why

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Don’t make a big investing mistake. 

There’s a reason some people make a point to never open a brokerage account or buy stocks. Investing in stocks can be a risky prospect. The value of a given stock can rise or fall dramatically within a short period of time. And sometimes, it can be hard to predict whether a given stock will gain or lose value, even when you make a point to review the finances of the company behind it thoroughly.

In fact, near-retirees and retirees are often advised to go light on stocks once their careers are wrapping or wrapped up. You’ll often see people in their 60s, for example, shift away from stocks in their IRA accounts and replace them with safer investments that are less volatile.

But while you might think that investing in stocks carries too much risk for your comfort zone, the reality is that there’s a risk in not buying stocks, too. And if you don’t put any money into stocks, you might end up disappointed in your portfolio down the line.

Don’t let yourself fall short

In a recent tweet, real estate and investing guru Graham Stephan said, “The opportunity cost of not investing in stocks is a bigger risk than ‘safe’ investing in the long run.” And he’s right about that.

Owning stocks means taking on some risk. But if you don’t invest in stocks, you’ll take on a different risk — the risk of not having enough money to meet your financial goals, like being able to retire in a secure, comfortable manner.

Remember, the value of a dollar tends to erode over time due to inflation — even during periods when inflation isn’t nearly as rampant as it’s been over the past 18 months or so. And so it’s important to invest in a manner that allows you to outpace inflation.

“Safer” investments like bonds won’t always allow you to do that. On the other hand, if you put money into stocks, even if some of those shares lose value over time, a lot might gain value. And buying stocks could make it so you’re able to do the things you’ve always wanted to do, whether it’s retire without financial worry or put your kids through college.

A good way to invest in stocks

There’s no way to take risk out of the equation when you’re investing in stocks. But one way to minimize your risk to some degree is to maintain a diversified portfolio. That means not loading up on a whole bunch of stocks from a single market sector, but rather, making sure you’re invested across a range of sectors, from tech to energy to healthcare.

At the same time, give yourself a long investing window. If you buy stocks with the goal of cashing them and taking the money in, say, five years, you might end up disappointed. But if you give yourself a 30-year window, that’s plenty of time to ride out market downturns and come out ahead.

It’s easy to see why the idea of buying stocks may not appeal to some people. But take Stephan’s advice and recognize that if you steer clear of stocks, you might end up taking on a less obvious risk that leaves you glaringly unhappy at the end of the day.

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