By Godfrey Gobba
The fear of losing our money is one of the primary reasons why many of us stay away from investing in high risk financial assets like shares. Risk is the possibility of losing your money and many people don’t invest in the stock market because they are scared of risk.
But here is why I believe that some of our ‘investments’, are in my view riskier than the stock market.
LIVING THINGS
If you think that the stock market is too risky for you and you would rather invest your money in cattle and poultry, you forget that living things kick the bucket just like that.
Do you ever consider the risk of mad cow disease or coccidiosis decimating your cattle or poultry holdings? Do you know that poultry can drop dead faster than a company in the stock market could ever go bankrupt?
If you consider a fixed asset like a house to be safer than cattle, do you know that when you invest in shares, what you really buy is a piece of all that company’s fixed assets?
My argument is that putting your money in living things like poultry exposes you to higher degrees of risk than in the stock market primarily because living things can drop dead in an instant but companies don’t just collapse overnight.
So if you think you are running away from risk by burying your money in cattle or poultry, I regret to inform you that your risk exposure is astronomical. You are basing your financial future on things that can kick the bucket instantly.
Don’t get me wrong here; I am not against owning cattle. In fact I love the damn animals but I just think that we need to change our mindsets with regards to investments. We simply can’t expect to financially emulate the developed world if we keep on investing our money like our great grandparents.
Cattle and poultry are perfect as income generating businesses but they become extremely risky if you start to look at them as your ‘retirement’ or your ticket to financial freedom.
SAVINGS ACCOUNTS
If you think that the stock market is just too risky for you and you would rather hide your money in ‘safe savings accounts’, I believe that if you define risk as the possibility of losing your money then that savings account is one very risky ‘investment’.
Think about it. Every month, you have less money on your account because of those maintenance fees and every year you lose your purchasing power to inflation because of the very low interest rates.
If that isn’t your definition of losing money then you probably need a new dictionary because the one you are currently using is missing several vital pages.
We often mistakenly consider short term volatility in stock prices as risk. But in reality, the real risk in the stock market lies in the profits and assets of those companies.
So for you to ‘permanently’ lose your money in the stock market, the company whose shares you own would have to either lose its assets or go bankrupt. The short term volatility is only a ‘temporary’ loss on paper.
Every maintenance fee that you pay in your savings account is a permanent loss of your money that you can’t recover but in the stock market, that temporary loss due to short term volatility can be recovered when markets rebound.
So if risk equals losing money then a savings account becomes a very risky vehicle for me.
But this is just my independent opinion and you shouldn’t make any investment decisions based on my weird thoughts. But what you should do is to seriously meditate on this and perhaps you too just might perceive things the way I do.
