We’ve all heard of risk reward ratio. You know that high reward investments come with higher risk. The recent troubles in the stock market are a good example. The stock market has the potential for high rewards but the recent crash make the risk obvious.  Many investors have made a knee jerk reaction to the market turmoil and moved to “safe” investments like bank CDs or Treasury notes.

The Hidden Risk

Those investors with “safe” investments are taking a big risk that they often don’t understand – The risk their investments won’t keep up with inflation.  There is also something known in economics as “opportunity cost.”    Whenever you invest money, time or some other resource, you risk the opportunity to invest it in something better.  Do you know how much it is costing you to be in “safe” investments?

You are a Long Term Investor

Many investors act as if they will cash out the day they retire.  The reality is you need to keep you retirement savings invested so that your nest egg continues to grow and produce income for the rest of your life.  One of the biggest fears of aging Americans is that they will run out of money before they run out of life.  If your retirement is only 10 years away, your investments will likely need to last you another 30 years.  That is a long term time frame.  So how will your investments fair over the long run.

How Much Will Your Nest Egg Grow Over Twenty Years?

20 year returns arrows growth copy

If you are invested at 2% it takes 35 years to double your money!  People often go all over town or scour the internet to get an extra 1/8th point on their CD rates.  The reality is the difference between 2% and 2 .125% is only about $4,000 over 20 years. The difference between 2% and the kind of returns you can get by investing in real estate is 10 – 20 fold or more.

If you look at the chart above, investing $100,000 at 2% will earn you about $48 thousand over twenty years.  That sounds pretty good until your realize you could easily earn five, ten, even twenty times that much.  Even the most conservative real estate inestments should earn you 8%.  Double digit returns are very realistic and can be done with modest risk with well chosen properties.

So ask yourself,   .   .   .    “Are you willing to give up $800,000 so you can play it safe?”