There’s an inherent sense, especially among Millennials, that when it comes to finances and investments, the best option is to play it safe. It’s not unreasonable to have this opinion. Millennials saw first hand what happened to their parents and grandparents because of the Great Recession. Unfortunately, not taking risks financially is actually the biggest risk in many cases.
From trading penny stocks and single investment picks to welcoming the idea of volatility, the riskiest investment concepts can have the biggest pay-offs. This is especially true over the long-term.
The following are some things to know about the inherent risks that come with playing it safe.
You Are Your Biggest Asset
In order to more readily embrace the idea of financial risk, young investors need to start reframing how they view themselves and their financial lives. It’s important when you’re younger to view yourself as your number one asset.
As compared to someone nearing retirement age, young workers have many years of earning potential ahead of them. That’s the safe asset to focus on.
The older you get, the fewer earning years you have, and the more a portfolio becomes the number one asset, but that’s just not the case when you’re starting out in your career, or a few years in. This is why older investors should be more conservative, but younger ones should be willing to take advantage of the opportunities risk can bring.
Safe Strategies Mean You Will Lose Money
If you’re staying only with safe strategies, especially things like savings accounts and CDs, you’re are losing money. Every year that goes by is going to reflect a loss for you. This is inevitable because of the effects of inflation.
People tend to worry so much about losing money during a stock downturn, but they let the value of their money continue to erode away in a savings account.
Even if your money is earning a little interest wherever you’re storing it, it’s not going to be even close to what it could earn if it were invested properly over the long-term. It’s not going to be enough to keep up with inflation, and you’re going to face a problem when you near retirement.
You Can’t Learn Without Risks
If you never take any risks with your money, you’ll never learn and grow in your life.
The best ways to learn about money and investments is often experience. You need valuable financial experiences to build a more strategic financial plan, even if some of these experiences aren’t positive.
What Can You Do To Take More Financial Risks?
There are things you can do, even if you’re an extremely risk-averse person, to embrace more concepts of risk and reap the benefits.
First and foremost, you have to educate yourself. The more you know, the more empowered you will be to take risks, but in a smart, strategic way. You also have to accept the fact that not every risk is going to pay off, but more than likely more will than won’t. You’re also going to feel financially braver if you can create some sense of security for yourself. Put aside a nest egg or emergency savings fund, and then let yourself be braver with everything else.