Imagine you’re playing a game where you have to guess “What’s More Likely?
Here’s the question: Getting attacked by a shark or developing diabetes? Odds are, you’d lean towards the dramatic shark attack. But hold on – did you know you’re more likely to develop diabetes?
In reality, you’re far more likely to develop diabetes than get attacked by a shark. While the odds of encountering a shark are a minuscule one in 300 million, did you know that in India, one out of every eleven people is at risk of developing diabetes?
Why do we give so much attention to some fears while ignoring others that are more prevalent and dangerous?
We tend to focus on things that are loud and dramatic, even if they’re not actually that dangerous. This can lead us to overlook things that are more likely to happen, but that don’t get as much attention.
This same principle applies to investing. We often get caught up in the noise and volatility of the market, and we may make decisions based on fear rather than logic.
Just ask the average person about investing in the stock market, and they’ll probably tell you:
Oh, yeah, investing is dangerous, like playing in a casino.
We hear all about the big market crashes and the stories of people losing their money, so we start to think that investing is just too risky. When things are going well, we fear that they may take a turn for the worse. And when things are bad, we fear they may get even worse. And there will always be a reason to sell.
Time as the Investment Ally
Just as the odds of encountering a shark are minuscule, the probability of experiencing negative returns in the stock market diminishes significantly as your investment timeframe extends.
For example
- The likelihood of experiencing negative returns over one day is around 46%.
- It drops to 39% for one month.
- Further down to just 7% for three years.
- If you hold your investments for seven years or more, the probability of negative returns becomes virtually zero.
This highlights the importance of having a long-term investment strategy and not making decisions based on short-term market fluctuations.
Navigating the Investment Seas
Remember, investing is not about making quick profits or timing the market. It’s about building wealth over time through consistent investment and adhering to a long-term investment strategy. By understanding probability, embracing patience, and making rational decisions, you can overcome the fear of investing and reap the rewards of long-term investing success.
Have you ever made an investment decision based on fear rather than logic?
