Most people think that bonds are safe and stocks are risky, but that might be the biggest mistake you could make.
Hi, I’m Bradford Ferguson of Halter Ferguson Financial and I get it. Everyone says that the stock market is volatile and that bonds are stable so it’s easy to believe they’re right. But what you might not understand is where the real risk lies. The real risk is in running out of money. You need GROWTH to keep up with inflation and make your money last thirty plus years after retirement.
And if you continue to believe that the volatility of the stock market is risk, you could actually run out a money because your low “risk” bonds don’t earn you enough.
So how do you get enough growth to ensure that you have enough money to last, without having to make painful sacrifices?
The key is to understand that RISK and VOLATILITY are not the same thing.
A bond preserves your money, but it does so with such a small margin of return--on average about 4 or 5 percent. Inflation and taxes virtually wipe it out that return. This means that your money remains the same. The problem is that the cost of goods does not.
This Hershey’s Chocolate bar cost 25 cents in 1980. Today the same chocolate bar will cost you four times as much. Your money doesn’t go as far today as it did even twelve months ago. This is why growth is so important. Your money needs to keep up with rising costs.
History shows that the best way to do that is stocks. Since 1926, large stocks have returned an average of 10% per year. If inflation is 3%, that still leaves you with 7% more a year.
It is pretty clear that as far as risks go, stocks might fluctuate more, but in the end they provide more growth. And not getting enough growth is the real risk in investing your hard-earned money.
So let me ask you, do you still want to believe that stocks are “too risky” and bonds are “the safe bet” and run out of money in retirement, or do you want to see more growth and real safety?
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