Even when stocks are doing well—and they’ve been on an incredible run the past five years with fantastic annualized gains. There is always a fear that the market could come down in a hurry – like a pack of cards – and that is scary is it not? Did that not happen in 2007 or should I say 2008 and 2009? What if the market falls 50% – or even worse your portfolio falls 60%.
Are we ever really for such a fall in our portfolios? Are we really ready for death? We always feel ‘he could have lived more’ do we not?
So it’s understandable, especially now, that all of us have doubts abound about the longevity of this bull market.
Do you have the famous question: Should I just skip shares altogether when investing for retirement?
But if you’re inclined to give shares a miss or even that you are considering such an option, you should be aware of the risk of NOT investing in shares. Yes, there are huge huge disadvantages.
Despite their gut-wrenching volatility—or, more perhaps because of it—shares tend to generate higher returns than other financial assets like bank fixed deposits, rbi bonds, real estate, gold, by a wide margin over the long term. That superior performance isn’t surely NOT guaranteed, but it’s been pretty persistent over the last 100 years or longer. So we will have to go by past performance, and accept that the next 20-30-40 years would remain like that. Of course we will be on a watch.
Those higher long-term gains give you a huge advantage when it comes to saving rather investing for retirement. For a given amount of savings, you are likely to end up with a larger nest egg by investing in good quality shares than you had avoided them. Another way to look at it is that by investing in shares you can build a much larger nest egg – even when you contribute lesser than the amount that you were willing to contribute to the investment!
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