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Posted: 6:00 a.m. Wednesday, Oct. 3, 2012

Dangers of staying on the sidelines as an investor



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What's your response been as an investor to recent historical volatility in U.S. and world markets?

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I've pulled my money out of the stock market.

I'm staying put and riding out the storm.

It's a big shrug of the shoulders to me. I don't have any money to invest!

Other.

By Clark Howard


Americans are sitting on $7 trillion in savings accounts and CDs at a time when the average investor is too afraid of stock market risk.

That $7 trillion number is unbelievable, by far the highest since such records started being kept around the tail end of World War II.

Yet people are afraid of risk at a time when the stock market has had a phenomenal run-up. In fact, the stock market has more than doubled in the last 3 years.

Still, too many investors got burned by dot coms and then the real estate bust and then the financial crisis. A lot of people hit a wall.

A guy I know in radio who took all his retirement money out of the stock market in the midst of the financial crisis and put it into the closest thing to cash in his 401(k). This guy is in his 30s.

So he took a full drubbing with the stock market decline and then missed out on the full recovery.

Sure, it's possible that stocks could be poised for a correction (10% decline in value) or a bear market (20%). But risk is part of the human condition.

Getting in and driving to work is one of most dangerous things we do. But it is a calculated risk. We know that lack of mobility is a worse punishment than the prospect of the risk of a possible accident. Yet with investing, we've lost that ability to overcome fear and drive that investment vehicle forward.

When our appetite for risk recovers, the economy is in a position for growth for many years to come because of that $7 trillion figure. In the meantime, the risk to your own financial wellbeing in the long term is very strong if you stay on the sidelines.

Life is not without risk. You just need risk that's appropriate for your age, whether it's real estate, stocks, commodities, or a little bit of all three. Do them all to have long term financial growth.

Remember, we don't just exist on this Earth. If you're sitting still, you're going backwards. You only progress when you take that step, take that risk, and move forward.