Risks of NOT investing in the Stock Market

Did you know there are risks involved with not investing in the stock market?

It is common knowledge that investing in the stock market is a risky activity and is associated with the potential of losing the capital that you have invested. A recent study has suggested that 20% of Australians are ‘worried about making a bad investment’ which prevented them from investing at all. What many people do not realise is that there is also a risk in not investing and therefore these risks need to be weighed up to determine the right course of action for you.

What are the key risks associated with investing?

There are some key risks that are accompanied with investing and include but are not limited to the following:

  1. Decrease in the value of your investment

The value of the money you have invested may fall or rise over time – this is how the share market operates. Therefore, the $10 that you invest today may be worth more or less tomorrow. However, the longer you invest for, the more likely your investments may rise in value depending on what assets you are invested in. However, this is not guaranteed and thus it is important for investors to ensure they are investing according to their needs and objectives, their risk appetite as well as maintain a diversified portfolio to mitigate against this risk.

  1. Income risks

Similar to the change in the value of your investments over time, the income that you receive from your investments may also rise and fall. There are a range of factors that may impact the income generated from your investments including the type of asset classes you are invested in such as growth vs defensive assets, as well as other external forces including interest rates, inflation and the dividends that companies provide. To read more about how inflation may impact your investments, click here. Therefore, this is another factor to consider when investing in the stock market and it is important to have sufficient income sources outside of your portfolio to support your financial needs and objectives.

  1. Liquidity of the investment

Another consideration of investing in the stock market is the liquidity of your investments. The timing of buying and selling particular investments is important and is likely to be determined by when investors require the cash they have invested. Therefore, it is vital that individuals consider the timeframes associated with their respective investments and when they plan to liquidate them. Another challenge associated with this is that some assets are far less liquid than others, such as property which is often a longer-term investment in comparison to shares, managed funds or ETFs. To understand the differences between these types of investment, click here. Hence, investors need to consider which investments are appropriate for their short, medium and long term goals and when their investments will need to be liquidated to meet these goals.

In saying this, there are also risks involved with not investing

  1. Deterioration of spending power

The first risk of failing to invest is that individuals have a decreased spending power. This is due to the cost-of-living rising over time as a result of inflation. This means that your money needs to keep up with the rising rate of inflation and therefore choosing not to invest may mean that your cash can buy less in the future.

  1. Shortfall risk

Despite being disciplined and following a strict budgeting plan, you may find that you cannot reach your goals such as reaching retirement or going on a dream holiday. This may be due to the fact that keeping your money in cash is unlikely to expose it to the same rate of return you would receive if you were to invest it.  Therefore, investing your money can reduce the risk that you have a shortfall whereby you implement a calculated and long-term investment plan that has been structured based on your individual needs and objectives and the goals you wish to achieve. If you would like some assistance in establishing an investment plan, please click the link to speak to an EPG Wealth adviser.

  1. Not enough in your nest egg

Choosing not to invest may mean that you run out of money in retirement as you are constantly withdrawing from your nest egg without topping it up as you are no longer working. Outliving the money you have saved for your retirement may mean that you have to rely solely on Government assistance schemes such as the Age Pension which may mean you need to revise your needs accordingly. Therefore, investing from a young age can assist you to grow your retirement savings to ensure they are appropriate for your cost of living in retirement and will enable them to continue growing during retirement.

Prior to making any investment decisions, it is important to consider the costs, benefits and risks associated with the options available to you. If you would like further guidance on how to structure your investments for retirement or would like to begin your investment journey, please click the link to organise a complimentary 20-minute phone call with an EPG Wealth adviser.

 

This information is purely factual in nature. Please do not rely on this information to make any financial decisions as this information has not been tailored to your personal. circumstances. If you would like financial product advice or services please let me know and I will set up an appointment for you. Any advice in this email is of a general nature only and has not been tailored to your personal objectives, financial situation and needs. Before acting on this advice, you should consider whether it is appropriate having regards to your personal objectives, financial situation and needs. Before making a decision to acquire a financial product, you should obtain and read a Product Disclosure Statement (PDS) relating to that product, it is important for you to consider these matters and to seek appropriate advice. The material contained in this email is based on information received in good faith from third party sources, and on our understanding of legislation and Government press releases at the date of publication, which are believed to be reliable and accurate. Past performance is not a reliable guide to future returns. Members of the IOOF group of companies (IOOF Group), associated employees or agents may have an interest in or receive monetary or other benefits from the financial products and services mentioned in this email. The Licensee is part of the IOOF Group, and we may recommend financial products issued by companies within the IOOF Group.
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