“We use the term risk all too casually, and the term uncertainty all too rarely.” – John Bogle

All investments involve a certain amount of risk: stocks, bonds, gold, bitcoin, real estate etc. Of all these, stocks are my favorite investment vehicle.

The stock market is not “risky” if you have a long term retirement ! For somebody interested in Financial Independence and Retiring early, you probably have more than the standard 30 years that most people plan for. For you, your savings might have to last 40 or even 50 years. That being the case, it’s in fact risky if you do not invest in the stock market which means your retirement savings might run out before you die.

Let’s understand what stocks are. You give money to a company to become a part owner of the company. The company takes your money, buys equipment, machinery and hires people to produce goods of value to the economy. It sells those goods and generates profits which it eventually distributes to its owners. Because you are taking a risk, the expected returns are higher than you would get by keeping your money in a savings account in a bank.

Now, any individual company might go bust, and in the short term there is volatility: a given stock’s price or the entire market may go up and down. There is also a market crash happening every few years. The broad market however, always trends upwards over the long term (10+ years). The rate of return is higher than less volatile assets like bonds, cash in savings account, or gold.

That said, what intimidates most people is what to choose? How can I be sure that my investment will not go down to zero? Thats where index funds come in and thats a story for another installment.

If you are looking to retire early, you can’t afford to stay out of the stock market!