Is Investing Risky? (Here’s how to think about it: Zoom Out.)

At FutureAdvisor we’re excited about the opportunity to have a conversation around how to invest well. This post is part of a series about general thinking about investing.  

How risky is investing your retirement savings in the stock market?

Bill Schultheis outlined this awesome mental model for thinking that question in his book, The New Coffeehouse Investor.

This is the conventional view of risk:


People who work in finance, Shultheis says, see the ups and downs of the market each day, and so stock market seems very volatile. Inflation steadily creeps up, but not much over a day or month. The stock market feels scary and risky in comparison.

And we think about risk this way too, because that’s how the finance industry does it. But we shouldn’t.

Retirement investing has a longer time horizon.

Zoom out from finance-industry-timescale to a retirement-investing-timescale: 1


Don’t get stressed out over that jaggedy short term view. We’re working with timeline of ten to forty years for retirement investing.

On those scales, historically, investing in the stock market as a whole has produced consistent positive returns. As long as you have invested in a fund that lets you own a little bit of each company in the stock market, you are highly, highly likely to get a positive return on your retirement savings over a fairly long time period.

The risk of investing in the stock market long-term is a lot smaller than you might have thought.

Let’s look at inflation.

The US Consumer Price Index shows that the price of pretty much everything has gone up over time. If you keep a lot of money in the proverbial “dollars under the mattress” – your buying power decreases each year.


If you put $3 under your bed and $3 in the stock market back in 1982, which one do you think will end up letting you buy more bread today? (Hint: go with the stock market – that $3 would have grown to $48 and you could buy 34 pounds of bread!)

If you think about it in terms of buying power, inflation is not just a huge risk, it’s a guaranteed loss of buying power.

How long-term investors think of risk:

So that graph where the stock market is scary and inflation is not? That’s “Today’s risk”. For long-term investors, there is a different graph:


Takeaway: Remove the risk that you can control, accept the risk that you can’t control.

You have NO CONTROL over what the stock market does. Hopefully it will keep going up, like it has over the past 90 years. By investing in index funds diversified across the key asset classes, you will capture the value of the stock market – whatever it does in the future.

You CAN CONTROL inflation risk by how you structure your portfolio. Choose to keep the right proportion of your money in productive asset classes, like stocks, which grow at a rate faster than the rise in the general price level. Don’t keep more cash than you need for the short term on hand.


Want to make your portfolio optimized in the risk department? Sign up for FutureAdvisor to get free investment advice.


Want to read more from The New Coffeehouse Investor? It’s right here, and it’s an excellent read.


  1. adapted from The New Coffeehouse Investor p34.

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