We’re not trying to scare you. You asked about risk an we told you there is risk. There is also reward. If you invest in stocks, then, on average, you will earn around a 10% return per year. Of course, if you’re about to retire in 2008 and you haven’t taken your money out of stocks, you are screwed. But if you’re 20 years from retirement, then it is likely that the 40% losses of net worth resulting from the recession will be forgotten because you’ve made a lot more money down the line.
Hell, we’ve made back almost half our losses already. But we’re in the market for a long time.
You should also realized that there is no safe investment. You are always taking a risk of losing money. Even in a savings account. My money market account actually lost money last year. That almost never happens.
You have to look at how long you are putting money in the market for. If you’re 25 and just starting, then you have 40 years before you’re going to use that money. Most people in that position take an aggressive approach—maybe all stocks.
As you get older, your mix of investments gets more and more safe. You switch more money into bonds and CDs. When it’s time to retire, you may only have 10% of your investments in stocks. Maybe 20% in bonds and the rest in CDs.
The market goes up and the market goes down. If you have a long term perspective, you expect these changes and losing money isn’t bothersome. You know it’ll go back up. Well, most likely. Anyway, you don’t panic. You follow your plan. If it’s a conservative plan, you’ll probably do well.