WHAT IS THE RISK OF NOT INVESTING?

6 December 2021 / Leave a Comment

What is the risk of not investing?

WHAT IS THE RISK OF NOT INVESTING?

The answer to this question is: it’s huge! Far bigger than putting your money to use if you actually invest productively rather than speculate.

The biggest risks are:

Losing out to inflation. Inflation is 2%-3% or more in most countries and could go higher. The banks don’t pay that much in most countries. Since 2008 and 0% interest rates, many people have indirectly lost over 30% of their money, as this loss to inflation compounds.
Currency devaluation. You do manage to beat inflation in bank deposits but you live in a country which experiences a currency shock. This harms expats more than locals, but it can affect everybody, because imported costs associated with a weak currency will eventually push up the inflation rate.
Institutional risks. The two previous points does sometimes push people towards higher-risk options. Places like Georgia and Cambodia have seen an increase in foreign deposits as both countries offer reasonable deposit rates on the USD. Yet this is taking a risk, for a return which isn’t as good as the stock markets
Relative losses. Let’s say you manage to beat inflation in the bank in a safe way, and avoid currency risks. Even in this case, cash has never beaten other investments long-term. If you can deal with a bit of volatility, it makes sense to invest rather than save. You will also feel bad if you have friends who have became wealthy slowly from investing, whilst your money just stays in cash earning 0%.

One of the key things is hidden risks. Ray Dalio explains below why holding a lot of cash is actually risky and a bad idea:

Billionaire Ray Dalio: Why saving in cash is “the worst thing you could do“.

Ray Dalio explains how inflation can cause you to lose money even when you are saving it.

It does make sense to have some cash for emergencies. If you are in a private business, moreover, you might need to build up cash for acquisition or another reason.

But staying in cash due to fear of the unknown isn’t a productive strategy.

Ultimately, investing can be done sensibly, if you do it long-term as per the below figures:

Nobody has lost money by buying and holding long-term in stock market indexes.

Loads of people have lost money to inflation in the bank.

The bottom line is this. The biggest risk of not investing is an indirect huge loss.

Start investing a small amount in the financial markets and start to trust your future.
I personally invest in eToro, because it is easy to use, I have a community where I can discuss with popular investors and above all because I invest without paying commissions.

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Disclaimer

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