Being careful is important… but never getting started is a tragedy.
If you are letting fear of losing money keep you from investing at all, you need to read this blog post.
You should know that investing can trigger many strong emotional responses like fear, greed, hope, disappointment, among others. It’s perfectly normal to have emotions about investing, but it shouldn’t control your actions or become a barrier.
Sometimes we are overcome by fear (or a feeling of being overwhelmed), because it’s very new to us.
But seasoned investors can get overwhelmed by fear too. I’ve met quite a few private investors who stopped investing after the financial crisis, because they lost money. The painful feeling of the financial crisis has, with time, dominated their view of the stock market.
Did you know that fear of something going wrong often wins over hope that things can change for the better? That is the reason that so many people get stuck in lives that are not fulfilling.
What can you do if you are overcome by fear?
I’ll give you five simple steps to follow.
1. Learn and study
Fear can be a sign that you don’t know enough about investing.
When you engage in a new activity, you need to study and learn.
No one just drives a car. We take driving lessons, and we have to pass a test.
I don’t know about you, but I’ve always taken classes in any new activity I embark upon, be it yoga, tennis, sailing or tango. It’s simply too time consuming to try to learn everything on your own, and much more fun to take classes in it.
It’s same thing with investing.
It’s stressful trying to figure it out on your own. Spend some time learning about it first.
You can learn through books, e-books, podcasts, blogs, YouTube and courses. I have a free e-book for you right here.
A structured investing course will be the fast track to learning. You can waste a lot of time navigating the internet searching for free information.
A course will cost something, but you must ask yourself what you risk losing if you make a bad investment.
2. Choose a Strategy
How do you want to go forward with it?
Do you want to buy stocks in individual companies?
Or do you want to buy funds?
There are many different kinds of investing strategies. I’m not going to list them all here, because it will confuse you more than it will help you. Instead, I’ll make a short cut to the two strategies that I recommend:
A. Value investing
If you want to invest in individual stocks, value investing is the best road to take in my opinion. Value investing means looking at a company in depth and figuring out if it’s a wonderful company with strong competitive advantages. It also means that you have to have an idea about what the company is worth and when you are paying a good price for it. You can learn to do that in my e-book here.
B. Dollar cost averaging
If you want to invest in funds, I suggest you choose a low cost ETF (Exchange Traded Fund) that tracks a stock index. Dollar cost averaging means investing the same amount each month into the same fund.
3. Set a Specific Goal
Sometimes we don’t get anywhere because we are vague about where we want to go.
Let me use running as an example.
If getting into shape is your goal, you are probably not going to be motivated enough to put on your new running shoes and train every morning.
You need a training plan detailing which days to run and for how long.
You also need a specific run to train for and a goal for how fast you want to run it.
The run doesn’t have to be the Boston marathon. A local 5K run is fine. The point is to visualize yourself running it and looking forward to it. It will motivate you every morning when you put on those running shoes.
How does this translate into investing?
You need to have a plan. How much are you going to set aside for investing? What is your goal for an average annual return?
You also need a money goal at least 10 years into the future.
How much money will you have in 10 years and what do you want to achieve with that money? What is your specific goal? It has to feel important to you.
For some people a motivating goal will be financial independence – not having to work a day job.
For other people it will be motivating buying a house. Or securing their children with wealth.
You’ll know when you have found your goal because it will excite you.
4. Buy Test Shares
Buying the first share is the hardest. You don’t have to make your first stock investment a big one.
In fact, I recommend that you ease into a new company by buying test shares. Just buy a little bit.
How much is a little?
It really depends on how much money you have. A nice rule of thumb is that test shares should never be more than one percent of your investible capital.
So if you have a $100,000, your first test investment should not be greater than $1,000.
We join running clubs, sailing clubs, churches and gyms.
We join because running, sailing, praying and exercising with others inspires us and keeps us motivated.
You shouldn’t be investing all on your own. Doing it alone triggers more fear.
You can get to know others through an investing course.
You can also join groups on Facebook and other social media.
Some of the investing groups on Facebook are big and noisy, so it’s worthwhile looking a bit around for one that fits your need.
I run a Facebook group called Managing Money Freedom on Facebook that you are welcome to join here.
If you want to learn more about investing, my free e-book Free Yourself is a good place to begin. You can download it here.