The Biggest Risk of All
Most people I’ve talked to aren’t excited about investing in the stock market these days. Worries about valuations, economics, politics, etc. are common reasons cited. I get it. All-time highs don’t seem like the greatest entry point. But they’re missing the bigger risk.
One day, if people choose to retire, they will probably need a sum of money saved (outside of social security) to live comfortably. That sum might be large - a 4% rule of thumb says a $500,000 nest egg can provide about $20,000 annually. Building up your nest egg may seem overwhelming, but you can get there. Here are the 3 main ways:
Setting aside tons of money at low guaranteed interest rates.
Investing less money and hoping compounding over time makes up the difference.
Winning the lottery or inheritance.
Let’s run a math-based savings scenario (and rule out the rich uncle or lucky scratcher):
Most people are unable to save $1,700 per month, and would probably opt for saving less and hoping for returns to make up the difference. Unfortunately, a lot of people do neither: most Americans retire with less than $200,000. Market volatility is one thing, but retiring with less than you need is by far the greater long-term financial risk.
If you want to avoid stock market risk, that’s perfectly fine. Just be prepared to invest a lot more money to meet your projections.