{"id":11900,"date":"2023-12-07T13:30:50","date_gmt":"2023-12-07T05:30:50","guid":{"rendered":"https:\/\/www.infinitysolutions.com\/?p=11900"},"modified":"2025-06-04T14:01:29","modified_gmt":"2025-06-04T06:01:29","slug":"money-myths-busted-the-stock-market-is-too-risky","status":"publish","type":"post","link":"https:\/\/www.infinitysolutions.com\/blog\/money-myths-busted-the-stock-market-is-too-risky\/","title":{"rendered":"Money myths busted: the stock market is too risky"},"content":{"rendered":"

While it\u2019s true that the stock market involves risk, don\u2019t dismiss it as too risky. We explore the relationship between risk and reward and outline the strategies investors can employ to minimise risk and maximise return when investing in the stock market as part of a holistic financial plan. <\/em><\/p>\n

 <\/p>\n

Risk: The main reason people avoid the stock markets<\/strong><\/p>\n

Fear of risk is the most common reason people give for avoiding investments in stocks and shares.<\/p>\n

This is because most of us like certain outcomes, especially when it comes to our hard-earned cash. That\u2019s why people choose to deposit their cash in savings accounts. The bank tells you how much interest you will earn and, if you save in a jurisdiction with a stable banking system that features a deposit insurance scheme<\/a>, your cash balance is guaranteed up to a certain level. Theoretically, at least.<\/p>\n

This is not a 100% risk-free strategy (such a thing doesn\u2019t exist). While your balance is probably not going to fall in real terms, its value will be eroded if the interest rate on your savings is below the rate of inflation. And with inflation running high in many countries, that\u2019s the case for millions of people around the world.<\/p>\n

And that\u2019s not the only price you pay for perceived safety: you will also be getting a lower return on your investment than you can get elsewhere.<\/p>\n

If you\u2019re investing over a short time horizon (less than five years), cash deposits may be the best option for your savings, but if you are investing for the long term, there are better choices out there. And the stock market is one of them.<\/p>\n

 <\/p>\n

How risky is investing in the stock market?<\/strong><\/p>\n

Stock markets do not offer certain outcomes that we can all agree on.<\/p>\n

Volatility is a given, which is why the risks are clearly signposted whenever you make a legitimate stock market investment.<\/p>\n

Nevertheless, investing in stocks remains one of the best and most reliable ways to grow your wealth, if you can stay invested over the long term<\/strong>.<\/p>\n

To give an example, the S&P 500 Index has returned an average of around 10% a year (not accounting for inflation) over the last century. Some years, the return has exceeded that, others it has been negative.<\/p>\n

 <\/p>\n

This chart shows the annual percentage change of the S&P 500 index over the last 30 years. It illustrates the importance of a long-term investment horizon.<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \"\"<\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

If you had invested in 1999, and sold in the short term, you would have made a loss thanks to the dot.com crash of the early 2000s, which triggered three consecutive years of negative returns.<\/p>\n

However, if you had kept those stocks until now, you\u2019d be looking at a healthy overall return. The losses that occurred in the years when the return was negative would have been mitigated by the gains made every other year<\/p>\n

This example demonstrates why buy and hold is the recommended strategy for the majority of retail investors<\/a>.<\/p>\n

\u00a0<\/strong><\/p>\n

Five other tips to mitigate stock market risk<\/strong><\/p>\n

A long-term investment horizon gives you the best chance of investment success, but there are other strategies you can implement to balance risk and return.<\/p>\n

 <\/p>\n

Here are five things you should do to maximise return and minimise risk.<\/p>\n