What words do you think of when you hear “Stock Market”?
Financial freedom? Growth? Innovation?
Resistant and afraid?
I ask because, when I chat with people about investing for retirement, I often hear the word “fearful” or “afraid” associated with it.
The stock market gets a bad rep ever since the 2008 financial crisis (even though we're still in the longest bull run history has ever seen since then).
So, shall we unpack this?
To really break through the fear of investing, we first need to truly understand the definition of fear.
According to the Webster dictionary, fear is defined as an unpleasant, often strong, emotion caused by anticipation or awareness of danger.
Well, the 2008 financial crisis was pretty scary, so I do completely understand why people associate the stock market with danger. You're not unjustified.
However, I have mapped out a few points for you to consider to conquer the fear so you can get your wealth-building on.
#1: Learn the Basics
We fear what we don't understand. This is the biggest problem.
The stock market can be a scary place when you don't know jack crap about it.
This is why I created my “Stock Market Basics for Newbies” video.
Even if you don't plan to be a stock market wizard, even a basic knowledge about how the stock market & powerful compounding interest works could help put you at ease.
Your future may depend on it (counting on social security isn't a good look these days).
Retirement plans are a good thing to research as well. They can cause a lot of confusion for people.
Many may not even realize they most likely actually ARE invested in the markets through their 401-k plans at work (trust me, you'd be surprised).
If you're young, I tell people that you have a really long time frame to let investing work for you which should help ease your fears as well.
Now, I know what you're thinking, “but, Nikki, the stock market crashes”!
You're right, it can, it's called a market cycle, and it's not only normal but necessary, for a healthy market.
If things went straight up forever, that would be no fun. How am I supposed to get stocks on sale?
Yes, ladies, sales aren't just for designer bags! They're also for the market and it's my favorite kind of sale.
Historically, the stock market has been one of the greatest generators of wealth and it continues to make new highs over and over. Until that fundamentally changes, stock market panics are opportunities for better prices in the long run.
Also, there are plenty of ways to diversify or keep a conservative or lower risk portfolio to keep you sleeping better at night.
#2: Know Your Risk Tolerance
Speaking of sleeping better at night, this brings us deeper into risk tolerance.
Does the thought of losing money in the stock market make you want to up-chuck your avocado toast? You may have a very conservative risk tolerance!
In all seriousness, this is an important step to all the pieces aligning for you to reach your goals.
If you are super conservative, you may need to save even more to catch up with your retirement goals.
Someone who is willing to take on a bit more risk, opens themselves up to more growth and may not need to save quite as much as the conservative investor.
There is no right or wrong and you can be invested no matter what.
There is just knowing where you stand, and making adjustments!
#3: The Stock Market is Backed by Real Company Earnings
Contrary to popular belief, the stock market isn't just floating up on air.
Ever heard of Walmart? Apple? Amazon? Perhaps, Google?
When you invest in the stock market, you're likely invested in all of these companies.
These are real companies, that make real money.
The S&P 500 is the most popular stock market index, tracking 500 of the largest companies by market cap.
Most of the time people invest in index funds that track the S&P 500. So, as those big companies make more money, you may as well.
Innovation is continuing. We've seen companies continue to have record profits year after year and our stock market has shown this as it continues to increase.
Another natural benefit of the stock market is that when companies lose money and become worthless, they get booted from being publicly traded.
Thriving companies continue to grow, earn, pay dividends and help you build wealth.
It's market survival of the fittest!
Want more? Take your finances to the next level with the Maximize Your Money Course.