Investing in the stock market can bring the same feeling as walking into a casino.
You may get lucky and win, or you might pick wrong and end up losing your hard-earned money.
While that perception is partially correct, it’s missing one key distinction:
The difference between trading and investing.
The goal of trading is to make quick money in the stock market by constantly buying and selling, hoping to capitalize on the day-to-day price changes.
This is what most people on Robinhood are doing.
There’s nothing wrong with trading, it just carries much more risk and provides a much lower chance of making money than investing does.
Investing can also be a short-term activity, but most investors take a long-term approach because it’s one of the most effective ways to reduce risk and increase your chance of making money in the stock market.
Let’s take a quick look at this chart I created with data from Blackrock and Morningstar:
When you take a long-term approach to the stock market, the odds of making money evolve a little bit..
If you only had money invested in the market for 1 month, you would have a 38% chance of losing money. Those aren’t the best odds and I probably wouldn’t invest any money if I knew the chance to lose was that high.
But that’s why I always talk about long-term investing.
If you keep money in the market for 15 years (based on historical returns), your odds of losing money drop to 0.2% and your chances of making money increase to 99.8%.
I don’t know about you, but I’m comfortable with those odds.
Given that savings accounts typically earn .06% and inflation has exceeded 7% as of late, investing is one of the few ways to put your money to work so that it grows over time and can fund your dream lifestyle.
And even when the stock market drops, if you’re taking a long-term approach, it’s not that scary, right?
