Way back in the early 1980s I met a rare coin dealer who shared his investment philosophy. The wisdom he shared I will never forget.The first thing you should consider whenever you make an investment is how much you might lose.
Not win. Rather how much you might lose.
So, what's your risk investing your 401(k) in the stock market? Developing some tiny sense about this risk will make investing a lot safer for you ... and put you in line to explode your 401(k)'s growth with relative ease, now until forever.
You can stop reading right now if you believe risk in the stock market is some dark mystery whose threat cannot be estimated to any useful degree. Go listen to the glorified salesmen who pitch the balanced, diversified approach to investing. They'll have you sacking 14% of your pay into your 401(k), spreading your savings across the various financial choices you have available. They'll say you will be managing your risk.
But will you?
The one thing you must know about investing your 401(k) is how to exercise its fullest, safest power. This only requires you understand the stock market, because the stock market is where the money is at. Simply put, know how to identify when your risk of loss investing in stocks is elevated.
Let me ask you. Do you suppose this risk will be any different when you're 73?
Of course not. So, if you learn how to assess risk in the stock market, you're good for life. You'll never need to learn another thing about managing your 401(k).
Sometimes risk in the stock market is low. When? When most people believe the stock market is a lousy investment.
Sometimes risk in the stock market is high. When? You guessed it! When most people believe the stock market is the place to be.
Actually, it's a bit more complicated. But you get the idea.
This has little to do with calling tops and bottoms in the stock market. Indeed, back in January 2000 I was sounding the alarm to family and friends. Yet it took some months before the stock market turned south. I never lost confidence it would. Having been developing my analytical acumen since 1984, I knew risk in the stock market had become elevated.
Now, had you no sense of history and the nature of risk in the stock market, you might have doubted the threat stocks were facing when I sounded the alarm back in January 2000. I will never forget one friend telling me, "Where else am I going to put my money?" Captured by the allure of a stock market that had risen 20% annually for five straight years (1995-1999) — something unprecedented in U.S. stock market history — my friend was the best evidence there ever was that, risk in the stock market was astronomical.
Assessing risk is not rocket science. In fact, it's easy. With this power you can...
- Beat 90% of financial pros
- Save less and make more money
- Retire sooner
- Never worry about going broke in retirement
What more could you ask for?
There's just one thing you need wrap your brain around. Since the stock market is where the money is at, you must know when to fear the risk of suffering huge losses investing in stocks. Do this and odds increase astronomically you will enjoy a bright, financial future.
Knowing when to fear risk investing your 401(k) in stocks is ground already covered here. If this takes you more than five minutes a month, then you might be worrying too much.
