Don’t Sit on the Sidelines
By: Patrick R. Cote CFA, CFP®
When it comes to investing, many people are hesitant to put their money into the stock market or other investment vehicles. Instead, they opt to sit on the sidelines with their cash, waiting for the "perfect" time to invest, driven by concerns that the stock market will fall. This can be even more tempting in the current environment of higher interest rates. While this may seem like a safe strategy, it can actually be detrimental to your long-term financial health.
One of the main reasons why you should not sit on the sidelines with cash is because of inflation. Over time, inflation erodes the purchasing power of your money. If you keep your cash under your mattress or in a savings account with low interest rates, you may actually be losing money in real terms. Last month, Susan mentioned some better yielding options for cash – it is important to note that only Treasury I bonds are keeping up with inflation. All of the other cash options provide returns that are lower than the inflation rate, meaning you are actually losing money in “real” terms over time.
There is always a reason not to invest – however, in the long run not investing your money will likely cause you to have lower returns. Investing in more volatile assets like stocks comes with risks, and it's important to be aware of them. Don't let fear or uncertainty hold you back from investing in your future. If you are concerned about whether this is the right time to invest, it is always an option to start dollar-cost-averaging into the market by investing a small amount each month (e.g., 1/12th per month over the course of a year). While you are not likely to time the market perfectly, this has the advantage of making sure you do eventually become fully invested.
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