Choosing to invest in the stock market is not for everyone. Some people don’t believe or trust the stock market. This fear is not unfounded as in the past 100 years there have been several market crashes that wiped out entire portfolios.
The top 5 reasons why you should not invest in the stock market are; fear of risk, length of time required, not enough capital, not enough investment knowledge, and better active investment opportunities.
The goal of this website is to show you how to invest properly to gain considerable return above normal market rates. That being said I would not be doing my job if I did not address the main reasons why you should not invest in the stock market.
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Without further ado, let’s jump right in.
Reason 1: Fear of Risk
Choosing to invest in the stock market does carry risk. Depending upon what stock you decide to buy this risk can be between 10%-100%!
Overall risk in your portfolio is the silent killer of portfolios. The average market return is between 8-10% per year. If you decide to pursue potentially higher returns then you start to introduce larger amounts of risk into your portfolio.
As we can see from the above image as your potential gains increase in the stock market so does your potential risk. Without proper risk management you run the risk of losing your entire investment.
Managing risk is the main difference between amateur and professional investors. By properly managing risk you can allow your portfolio to potentially have gains in the 50-70% range without risking too much.
This however is an artform that many don’t have time to master. As such one of the main reasons to not invest in the stock market is because potential investors are risk averse.
Reason 2: Length of Time Required
The main ingredient to making a good Return on Investment (ROI) in the stock market is time.
The average return in the market is 8-10% per year. As such the time it would take to double your investment is 10 years!
Naturally many people don’t have this type of time. A majority of the people in the world want to get rich in a fast manner and simply don’t have the time that is required to properly invest.
Because of this retail investors pursue higher risk and end up losing money on their investments. Brokers and professional investors end up taking money from retail investors because the professional investors understand that it takes time for investments to work.
That being said, if you’re in your ‘golden-years’ there is not enough time to let your investments compound. Because of this the stock market is largely closed off to people who are above 60 years old.
Imagine if you are 70 years old. You’re only expecting to live for another 20-30 years. Assuming the market gets around 9% per year that means that whatever you invest now will gain around 30% over the remainder of your life.
Whatever you chose to invest will be tied up in investments for the rest of your life. As such it might be a better idea to instead live off that hard earned money instead of locking it up in the stock market.
The length of time that is required to actually make a profit prevents a portion of the world’s population from seeing anything from their investments. The other reason why length of time matters is amount of capital, which is the next reason.
Reason 3: Not Enough Capital
If we can assume that your first portfolio will gain around 8-10% per year then in order to see any decent income you will need some decent sized investment capital.
For example, if you started with an investment size of only $1000 then for the entire year you can expect to gain around $100. In the United States $100 is enough for dinner and a movie.
However if we increase that starting investment amount to $100,000 then we can assume that for the first year you will make $10,000. Now we are in business as $10,000 will cover a large percentage of the average apartment rent.
This is one of the main reasons why people don’t start investing in the stock market. Without the proper amount of capital then you simply are not going to return enough to make it worth your while.
That is unless you know what you are doing. If you want to start learning how to properly invest yourself on the right site. Check out this article to get started.
Once you know what you are doing then it’s possible to return consistent returns in the 20-30% range per year while also managing risk. It’s going to take some time to get to this point but I highly suggest learning how to invest as it is a great way to achieve financial freedom early in life.
If you compound your investments, which means you don’t pull out cash to spend but instead invest it again. You can expect to double your investment every 1.5-2 years once you know what you’re doing.
Now eventually this return will cap out as you exhaust investment methodologies. The reason behind this is rather complex but just understand that if you have an investment size of $1,000,000 or more then it gets hard to achieve large returns. This is because at this size portfolio you have outgrown a majority of investment methodologies that you can perform on your own.
At this point however you are making so much money you can pay a firm to manage your investments.
Reason 4: Not Enough Investment Knowledge
Making a good return in the stock market is entirely dependent upon how well you can research potential investments. This is why a good research analyst will get paid millions of dollars per year by a group of clients.
For example, let’s say that you are an industry expert on the U.S energy sector. You would understand what’s going to happen in the sector over the next 5-10 years. Hedge funds and ‘smart-money’ will pay out substantial amounts of money to share your knowledge with them.
A good research analyst will be able to routinely return in the range of 15-25% alone just off their research. Throw on top of that proper hedging and trading and suddenly a good firm can return 25-30% year over year.
The good news is that you don’t need to be the best analyst out there. You simply need to be better than the average investor, which believe it or not is not hard at all. Just by reading some articles on this site alone you will be better then 90% of other retail investors out there.
This is because the average retail investor simply trades off ‘guru’ recommendations or intuition. If you can arm yourself with the proper investment knowledge then chances are you will be in the percentage of ‘successful’ investors.
However this is one of the main reasons that people don’t invest in the stock market. They realize that it takes effort to learn the skills to do proper research. As such they tend to avoid investing in the market at all as that’s easier than learning how to invest properly.
If you fall in this category and want to learn how to invest then I recommend spending at least an hour a day learning how to read financial documents, how to position trades, and how to create an investment methodology. Here at ChronoHistoria I give all this info for free.
Let me know if you need help on how to get started. I enjoy helping others grow wealth in the market.
Reason 5: Better Active Investment Opportunities
There are two types of investments, passive and active.
Investing in the stock market is for the most part a passive investment. After you do the research and pick out your investment the last step is to wait. You can impact how fast the investment makes money for you.
This is both a good thing and a bad thing for potential investors. If you don’t have much time in your busy schedule then investing is a great opportunity as it’s passive. You just put money aside and watch it grow.
However, most investors can only expect to grow an investment at or around 10% per year. There are much, much better investment opportunities out there. They are active investments.
An active investment is an investment where you have to constantly provide effort to grow or keep your investment. Active investments can be found in real estate or businesses. The upside potential in active investments is always going to be higher than larger then passive investments but they require constant attention.
In an active investment such as a business you are constantly working to keep things running smoothly. It’s a long hard drawn out process.
That being said it’s not uncommon to see active investments grow at or near 50-70% for the first couple years. This will cap out fast unless you hire a good manager or CEO who can continue to scale at a start-up rate.
If you have the time and patience then active investments are the way to go. If however you want a more passive and chill way to generate capital then passive is the way to go.
The top 5 reasons why you should not invest in the stock market are; better active investment opportunities, not enough capital, not enough investment knowledge, fear of risk, and length of time required.
If however you are willing to learn how to manage these downsides I highly recommend learning how to invest in the stock market. It has changed my life and at the very least I think it will help yours. It only takes around one hour a day for 2-3 months to learn how to invest properly.
Once you know how to invest in stock markets and make a return then you can passively generate wealth. Eventually this passive generation will result in more money than a salary at a job which will free you to pursue your dreams.
As always if you like content like this then you should share on social media and subscribe to the newsletter! Every share helps me help others so it’s much appreciated.
Further, you can check out some of the other articles below.
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Can You Make 1% A Day in the Stock Market? (3 Steps)
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As always, I wish you the best of luck in your investments.