I know about index funds. Even those are not nearly as safe as people think. It is a fallacy to assume that because the SP500 on average grows 7% a year that you will get a 7%/year return rate on your investment. Your true expected return is lower than that. People have a hard time predicting how they will behave in particular situations. They swear they won’t sell after a crash, and yet they do. You might say you are not like that, but probabilistically speaking you probably are. You might get sick and need to get cash quick and sell while the market is down. You might need to buy a house because of an unexpected child. Because the group gets 7% return, does not mean that an individual will get 7% return on the long run. This is called the ergodicity fallacy. There is also tracking error and fees, depending on your broker.
I know about index funds. Even those are not nearly as safe as people think. It is a fallacy to assume that because the SP500 on average grows 7% a year that you will get a 7%/year return rate on your investment. Your true expected return is lower than that. People have a hard time predicting how they will behave in particular situations. They swear they won’t sell after a crash, and yet they do. You might say you are not like that, but probabilistically speaking you probably are. You might get sick and need to get cash quick and sell while the market is down. You might need to buy a house because of an unexpected child. Because the group gets 7% return, does not mean that an individual will get 7% return on the long run. This is called the ergodicity fallacy. There is also tracking error and fees, depending on your broker.