Do You Agree or Disagree of This Statement? Young People with Little Wealth Should Not Invest Money in Risky Asset Such as the Stock Market Because They Can’t Afford to Lose What Little Money They Have. By Nashua A popular opinion is that if you want a higher rate of return then simply volunteer to take on more risk. Another popular idea is that because young people have a long term investment horizon it won’t hurt if they lose money during a stock crash because eventually the market will go back up, so therefore it is not a problem to take on more risk. I disagree.
Even if someone has a long investment horizon that gives them lots of time to grow out of a crash it is still bad to lose money and be forced to wait many years to breakable. All investors regardless of risk tolerance should not squander or gamble with their money. Instead invest carefully and seek to minimize risk. Losing money creates an asymmetric scenario where it is harder to recuperate from a loss than one would expect. For example if you buy a bubble priced stock at $100 and it goes to $50 and then increases by 50% it is now at $75 so you still lost money.
The point is that losses cause asymmetrically more damage than the benefit from gains so you need to emphasize risk control and risk avoidance. Since it is too hard to time the market then the best choice is to invest in quality assets that have a low probability of a permanent crash. Also these investments need to be bought when they are priced right which may be a rare occurrence. So young people should not take on more risk than the average person. And no one should take on excess risk in the hopes that simply volunteering for risk will result in a reward.
Yes, the average risky investment over a 100 years will return more than a low risk investment, but some high risk investments could be way too risky. What is needed is to pick moderately riskier investments that have sound fundamentals and only pick them when they are at a low point in their price cycle. Avoid the investments that have higher than average risk. This is far different than simply Jumping into a pool of high risk investments and buying a grab bag of risky assets. I have written an article “Can young investors take on more risk? “