You may or may not con­sid­er your­self a savvy investor.  But you do con­sid­er your­self a “safe” investor.  You have mon­ey stashed away for a rainy day, your kid’s edu­ca­tion and your own retire­ment.  And you don’t take “risks”.  You want to know that mon­ey will be there 5, 10, 20 years from now.  So you stick your rainy day fund in a bank check­ing account, the kid’s edu­ca­tion fund in a bank’s sav­ings account and your retire­ment fund in a guar­an­teed invest­ment con­tract fund.  

No risk. Your mon­ey is safe, as long as you still believe in the U.S. Bank­ing sys­tem and the Fed­er­al Deposit Insur­ance Cor­po­ra­tion (FDIC, you know, the peo­ple who insure you bank deposits up to $250,000).  The bank might even give you a lit­tle inter­est every month.  You can sleep at night. 

Unfor­tu­nate­ly, your wealth is not grow­ing.  Bank inter­est rates are his­tor­i­cal­ly low.  Accord­ing to a recent Bankrate.com sur­vey, the nation­al aver­age inter­est rate on a bank check­ing account is just 0.11% with the best being just shy of 1%.  This is hard­ly any­thing to get excit­ed about.   

Even more wor­ri­some, one has to con­sid­er the effects of infla­tion.  Infla­tion slow­ly erodes your pur­chas­ing pow­er by mak­ing prod­ucts more expen­sive over time.  Cur­rent­ly, infla­tion is run­ning at approx­i­mate­ly 1.4%.  If you throw in food, oil and gaso­line, it ris­es to about 2.7%.  It gets even worse when you fac­tor in tax­es.  So, by keep­ing mon­ey in the bank or a retire­ment guar­an­teed invest­ment con­tract fund, you are lock­ing in a loss of any­where between 1.5% and 2.5% every year! 

There­in lays the fatal flaw of believ­ing you are a “safe” investor.  By lock­ing in low inter­est rates, you are los­ing mon­ey to infla­tion each and every month.  Can you real­ly sleep sound­ly at night know­ing your wal­let is slow­ly being emp­tied out at the same time?    

So, why do peo­ple decide to either post­pone sav­ing or keep the major­i­ty of their sav­ings in cash when they know that the best way to ensure a pros­per­ous life is by invest­ing in a com­bi­na­tion of stocks, bonds and cash?  

 

F.E.A.R.

Accord­ing to a July 2013 sur­vey con­duct­ed by Har­ris Inter­ac­tive on behalf of Nation­wide Finan­cial, Amer­i­cans are more afraid of invest­ing in the stock mar­ket than they are of los­ing their jobs, pub­lic speak­ing and even dying. 

So what cre­ates these emo­tions and feel­ing towards the mar­kets?  Here is our top sev­en list of why peo­ple fear the stock mar­ket: 

  1. the econ­o­my is bad  ….  and get­ting worse  ….  And will for­ev­er
  2. the mar­ket is rigged by  ….   evil bankers, com­put­ers, etc., etc., etc.,
  3. it’s gone up fast  ….   and it’s going to crash ….  right after I put my mon­ey in it
  4. it’s going down  ….  and it’s going to keep going down …. for­ev­er
  5. the aver­age investor doesn’t have a chance  ….   ever
  6. I don’t know any­thing about stocks or bonds  ….  and I nev­er want to
  7. I’ve been burned by the “mar­ket” before  ….  and I’ll nev­er trust it ever again 

 

All of these rea­sons for being afraid of invest­ing in the mar­ket are valid !!  These are your feel­ings and rep­re­sent how you per­ceive the mar­ket.  Your per­cep­tions are your real­i­ty.  And, accord­ing to Albert Ein­stein, “Real­i­ty is mere­ly an illu­sion, albeit a very per­sis­tent one”. 

And per­sis­tence is key in cre­at­ing our per­cep­tion of real­i­ty.  Take a look at the finan­cial cable T.V. shows or the head­lines on finan­cial web­sites.  A con­tin­u­al stream of dread, doom and fear mon­ger­ing.  All writ­ten in bold, HUGE FONT, CAPITAL LETTERS (isn’t that scream­ing in the text­verse?).  Head­lines such as “Yes, stocks are rigged and Fed is the biggest rig­ger”, “New dooms­day poll: 99.9% risk of 2014 crash”, “Crash of 2014: Like 1929, you’ll nev­er hear it com­ing”, “Euro­pean banks still pose glob­al risks”, “The market’s rigged, you say? When wasn’t it?”  “Don’t try call­ing this jobs mar­ket nor­mal”, and on and on and on …. All designed to catch your atten­tion and manip­u­late your emo­tions and per­cep­tions of the stock mar­ket and econ­o­my.      

Think about the real­i­ty you are liv­ing in now.  Who wrote that real­i­ty?  Is it yours or was it built on the view of oth­ers; the media dar­lings?  Maybe your friends, cowork­ers or neigh­bors?  Aren’t they also being inun­dat­ed with the same media infor­ma­tion you see?  The sto­ry you are hear­ing, that stocks are bad and dan­ger­ous, IS detri­men­tal to your future finan­cial life and will, more than like­ly, keep you from real­iz­ing your future dreams.  It could very well mean the dif­fer­ence between liv­ing in your own home in retire­ment or being forced into a retire­ment home.     

Your next step is to begin with mak­ing a con­scious deci­sion to be in charge of your own per­cep­tion.  You, and only you, own your future.  If you don’t, trust me, some­one will always be there to “help” you cre­ate your per­cep­tion.   

So, how can you take con­trol of your per­cep­tion?  Our next blog series will focus on rec­og­niz­ing and under­stand­ing why we fear and mis­trust the finan­cial world, define what “safe invest­ing” real­ly is, and, final­ly, tech­niques you can use to man­age your fear of invest­ing in the mar­ket.  

Don’t get me wrong, there are no “cures” to these fears.  It’s impos­si­ble to escape the media sta­t­ic you encounter on a dai­ly basis in the dig­i­tal age in which we live.  The best you can do is to min­i­mize the sta­t­ic and tune into your inner strength and deter­mi­na­tion to live your life pros­per­ous­ly.