Summary of "Conquering Investment Fears and Risks (SB1669)" – The Stacking Benjamins Show
Release Date: April 11, 2025
Hosts: Joe Saul-Sehy and OG
Guest: Paula Pant from Afford Anything
Additional Contributors: Doc G (Doc Cheeseback) and occasional input from Doug (Joe's Mom's Neighbor)
Introduction to Investment Fears
The episode kicks off with a light-hearted banter about everyday distractions, segueing into the main topic: understanding and overcoming fears related to investing. Hosts Joe and OG set a friendly tone, emphasizing the importance of demystifying financial risks to make investing more approachable.
Exploring Various Investment Risks
The core of the episode revolves around dissecting different types of investment risks as outlined by the CFP Board. The discussion is enriched by personal anecdotes, expert insights, and practical strategies to mitigate these fears.
1. Market Risk
Timestamp: [09:59]
Doc G: "This is a real fear for people, especially those who either haven't been in the stock market before or haven't studied it. It's the idea that the stock market is the place you go to lose everything."
The hosts delve into the common apprehension surrounding market volatility. They highlight the significance of language in framing investment strategies, advocating for terms like "investing in the 500 biggest companies" over "playing the market." This shift in terminology helps reframe investing as a strategic endeavor rather than gambling.
2. Liquidity Risk
Timestamp: [17:47]
OG: "Liquidity risk is kind of the opposite, right? My money is not available when I need my money to be available."
Liquidity risk focuses on the availability of funds when needed. The discussion emphasizes the importance of advanced planning—maintaining emergency funds and aligning investment choices with short-term financial needs versus long-term goals. Doc G underscores that careful planning can mitigate the challenges of liquidity, especially during the accumulation phase of investing.
3. Concentration Risk
Timestamp: [26:03]
Doc G: "Concentration is good. The problem is you also could go to zero."
Concentration risk involves having a significant portion of investments in a single asset or sector. The hosts caution against over-concentration, especially among new investors drawn to trendy assets like cryptocurrencies. Diversification across various sectors and asset classes is recommended to balance potential returns with manageable risk levels.
4. Credit Risk and Depositor Risk
Timestamp: [44:36]
Paula Pant: "Anytime that you are taking the lender side of the deal, this kind of goes back to what we were talking about earlier."
Credit risk pertains to the possibility of loss resulting from a borrower's failure to repay a loan or meet contractual obligations. Depositor risk, a related concept, involves the risk that an institution will not return deposited funds. The discussion highlights traditional banking protections like FDIC insurance and contrasts them with the unregulated nature of cryptocurrencies, which lack similar safeguards.
5. Reinvestment Risk
Timestamp: [49:28]
Joe Saul-Sehy: "What should my expectation actually be with this investment?"
Reinvestment risk refers to the uncertainty about the rates at which dividends or interest earned can be reinvested. Joe illustrates this with the example of Apple’s historical dividend policies, stressing the importance of understanding how reinvestment strategies can impact long-term returns.
6. Inflation Risk
Timestamp: [51:10]
Doc G: "Investing in businesses that are growing long term is probably your best hedge against inflation."
Inflation risk is the erosion of purchasing power due to rising prices. The hosts advocate for investing in growth-oriented equities as a hedge against inflation, suggesting that businesses with strong growth prospects can outperform inflation over time.
7. Horizon Risk and Longevity Risk
Timestamp: [53:51]
Joe Saul-Sehy: "Think about what happens if you live longer than what your plan is."
Horizon risk involves the risk that an investor's time horizon may change unexpectedly, affecting their investment strategy. Longevity risk pertains to the uncertainty of living longer than expected, potentially outliving one's savings. The discussion underscores the necessity of flexible financial planning to accommodate changes in life expectancy and personal circumstances.
8. Foreign Investment Risk
Timestamp: [58:30]
Paula Pant: "Investing abroad introduces currency and regulatory risks."
Foreign investment risk includes factors like currency fluctuations, differing economic conditions, and varying regulatory environments. The hosts emphasize the importance of diversification and the benefits of relying on diversified funds or ETFs to navigate the complexities of international investments safely.
Strategies to Mitigate Investment Risks
Throughout the discussion, the hosts offer practical strategies to manage and mitigate these various risks:
- Diversification: Spreading investments across different asset classes, sectors, and geographies to reduce exposure to any single risk.
- Proper Planning: Aligning investment choices with financial goals and time horizons to ensure liquidity and adaptability.
- Understanding Products: Educating oneself about the nature of different investments, including their inherent risks and potential returns.
- Strategic Rebalancing: Regularly adjusting the investment portfolio to maintain desired risk levels and capitalize on growth opportunities.
Conclusion and Takeaways
In wrapping up, Joe Saul-Sehy reinforces the episode's core message:
“Ultimately, there's no danger with investing whatsoever. So get your money invested.”
While acknowledging the inherent risks in investing, the hosts emphasize that informed strategies and disciplined planning can significantly alleviate fears and enhance financial security.
Notable Quotes:
- Joe Saul-Sehy: "If you said, I'm going to invest in the 500 biggest companies in the world, that feels a lot differently than saying I'm going to play the market." [11:07]
- OG: "There's a risk that we go on and on too long." [07:11]
- Paula Pant: "Real estate feels more real because of its tangibility." [12:43]
- Doc G: "The risk of not doing anything is that your money might not grow as expected." [12:02]
- Joe Saul-Sehy: "Risk is different than danger." [59:46]
Additional Segments
While primarily focused on investment risks, the episode also features the show's trademark humor and interaction, including a trivia segment about the longest recorded apple peel and light-hearted discussions about milkshakes and personal anecdotes. These elements maintain the show's engaging and friendly atmosphere, making complex financial topics more accessible and enjoyable for listeners.
Resources Mentioned:
- Afford Anything Podcast: Hosted by Paula Pant, focusing on financial independence and smart investing strategies.
- Earn and Invest Podcast: Hosted by Doc G, discussing purpose-driven financial planning.
For more insights and resources, visit StackingBenjamins.com.