Bungee jumping, anyone?

Under normal circumstances, if we were given a choice to stay safely on land or to jump off a bridge, I think we would choose to stay on land. If we were guaranteed safety if we were to jump off a bridge and collect an experience of a lifetime, would we do it? Many still wouldn't or else bungee jumping would become a very common pastime.

Last night, I had dinner with a few friends and as usual, we talked about investments as well. We all have friends who are very risk averse and would rather leave their money in the banks and collect 0.125% interest p.a. Some are "smarter" and leave their money in one year fixed deposits and collect 0.7% interest p.a. Now, we are talking about people with excess cash, beyond what they need in the event of unemployment over a period of 6 months. They are safely on land or so they think.

The threat of wealth erosion by inflation is very real and leaving our hard earned money in bank accounts to collect <1% p.a. isn't the wisest thing to do. The Monetary Authority of Singapore lifted its 2010 inflation forecast to between 2.5 and 3.5% on 19 Nov 2009. Land we were standing on which seemed firm just now might quickly become quicksand. Jim Rogers says that the worst thing to be in now is cash. It's perhaps an exaggeration but I think we get the idea.

There are many financial instruments which would "guarantee" higher returns but few would provide the liquidity which the stock market has. All financial instruments carry an element of risk to varying degrees. Make no mistake, the stock market has plenty of risks but it also has ample rewards for those who are equipped properly to traverse the difficult terrain. Having the right skills and, dare I say, right companions would make the journey a smoother one. Ultimately, do our due diligence and make our own decisions. We have no one to blame for our failures but ourselves.

There are many reasons why people would not venture into the stock market. Fear of losing money is probably the main reason. Not everyone has the mental strength to overcome this fear to move their money out of their "risk free" savings accounts into the stock market. We have friends who say they "cannot lose a single cent" and that they "would lose sleep at night if they have money in the stock market". It would be better to leave them be. Till this day, I have not had the good fortune of knowing anyone who had only made money in the stock market and did not lose a single cent. People who ask for 100% safety for their money (in nominal value) would have to settle for <1% annual yield.
Things Singaporean: SRS, CPF-OA and CPF-SA.