Something that's never made sense to me about stocks: Unless you're extremely wealthy, any money you are able to save (outside of retirement money) is probably money you are going to want to use for something to improve your life in the semi-near future. Buying a house or car (or just a better one) for example. With that assumption in place, under what circumstances does investing in index funds make any sense whatso…
Say I'm squirreling away $5k a year for a new car in 4 years. Every year I put in another $5k, so by the end, I've put in $25k.
If I put that in a typical savings account, I earn 0.1% and come out $50 ahead. Effectively 0, or losing value once you throw in inflation.
Go with stocks, at a 5% return, I end up with over $27k, and at 8% I have over $29k. It's also true that I could lose value, and that's the gamble.
So it's a matter of your comfort level, obviously, and if you can't afford to lose the money, don't invest. But in many many cases, the reward outweighs the risk.
I view it that I'm much, much more likely to get a return > 0.1% than experience a loss over 5 years, and I'm willing to accept the risk.