‘Fear and uncertainty’: How to avoid major $172,000 money mistake

Stats show there’s a huge money-making opportunity for Aussies today – and even a small gamble can soon seriously pay off.

With recent data showing that the peak of inflation is all but over, and with it seeming more and more likely the RBA have pulled off their goal of killing inflation without killing the economy, there’s a heap of opportunity out there for smart investors today.

But there’s also a lot of fear and uncertainty, and in my experience helping people invest, it’s this fear that’s often the biggest roadblock that stops most people from investing more – and therefore the biggest thing that slows down how quickly people get ahead.

I wanted to unpack whether now is a good time to be investing, and how you can reduce and manage risk when you invest so you get the results you’re after.

Is now a good time to invest?

For the last 18 months, many market commentators and forecasters have been talking about the potential for a huge sharemarket collapse.

Many of them were adamant that the market was going to go down hard and fast, and that the smartest play was to not be investing.

The forecasters often get it wrong. Picture: iStock

But the forecasters often get it wrong, and the current market is case in point.

While the forecasters were saying markets would go down, they did the exact opposite, with tech shares going up more than 30 per cent and the combined value of the US sharemarket increasing by a whopping $US6 trillion in 2023.

Listening to the forecasters can be a dangerous game.

Consider the example below. Full credit for these figures to investment powerhouse pearler.

If you’d invested $10,000 into the 500 largest US companies (S&P500) 30 years ago, that money would be worth around $208,000 today, reflecting a total return of 1980 per cent.

But here’s the thing – if you weren’t invested during the downturns and missed the best days in the markets over that time, your $10,000 would only be worth $36,000 today – meaning your investments would have grown by $172,000 less.

And the kicker here is that more than 83 per cent of the best days in markets happened during bear market periods when the sharemarket was in decline.

This shows how difficult and costly it is to try to time the market, choosing not to invest when the market seems risky.

The lesson here is that consistent investing, even in periods where markets seem scary, pays off.

These stats also show the huge opportunity for investors today. Most people think you need to have a heap of money to invest, but this shows that even an amount as small as $10,000 can grow over time into a serious nest egg.

Stats show the huge opportunity for investors today.

At the moment, I’m seeing a lot of people fearful, thinking the least risky thing they can do is to save money in cash or park it in an offset account.

What these investors don’t realise is that doing nothing is risky at the best of times, but in periods like we’re seeing today, doing nothing is extra risky.

How to reduce risk when you invest

If you’re investing, there are really only two things you need to do if you want to get good results.

Get these right and you reduce and manage risk effectively, avoid stress and costly mistakes, and ultimately accelerate your progress towards the goals that are most important to you.

Choose good investments

This should be your first big job when you invest. You want to only choose premium investments that will perform well into the future.

The tricky part here is that you often don’t know which investments will perform best, but the statistics show that by using index fund investments that simply track the overall market return, you’ll do better more than 95 per cent of the time.

There’s a lot of ways to be right, but I like those odds.

Don’t be forced to sell

This is probably the most important rule of investing when markets are experiencing big ups and downs.

If you’ve followed the first step above and stocked your investment portfolio with quality, premium investments, so long as you’re never forced to sell at a bad time, you can let your good investments do what good investments do over the long term, which is make you a bunch of money.

The key to investing success is simple – you need to invest more money faster. Picture: iStock

To make sure you’re never forced to sell investments, you want to put enough money aside to cover your day-to-day living expenses, and make sure you have an extra buffer for unexpected expenses and emergencies.

When you put this money aside, it means that every dollar you invest can be done with the confidence that you can leave it there until you get the results you’re looking for.

The wrap

The key to investing success is simple – you need to invest more money faster.

The next layer is where the real money is made, that you need to choose good investments and make sure you’re never forced to sell. That way you can ride out any market conditions, and ultimately make consistent progress and build your momentum.

But simple doesn’t necessarily mean easy.

There’s so much noise out there when it comes to the world of investing, how to choose investments, and the things you should be doing to get ahead. But a lot of it is exactly that – noise.

Stick to the fundamentals and you’ll get better results, make faster progress, and do it all with less stress.

Ben Nash is a finance expert commentator, financial adviser and founder of Pivot Wealth, the creator of the Smart Money Accelerator, author of Replace Your Salary by Investing and host of the Mo Money podcast. He runs regular free online money education events which you can book here.