How to Overcome the Fear of Stock Investing

How to Overcome the Fear of Stock Investing

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.

5. Network 

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.  

How to Avoid the Top Seven Beginner Investing Mistakes

How to Avoid the Top Seven Beginner Investing Mistakes

 A lot of new investors are entering the stock market these days.

They are pushed by negative interest rates and lured by the success others have had in a very long bull market. 

But with market volatility running high, these are uncertain times to be a newbie in the market. Trying to invest without knowledge or experience and without a strategy is no better than trying to become rich by gambling in a casino. You need a plan, and you need to avoid the most common pitfalls.

So what are the most typical mistakes that you should avoid? I will tell you right here. 

1. Not Getting Started

This is the first mistake and one of the most common.

People get stuck in analysis paralysis.

They save money, open a trading account, watch YouTube videos, and join investing groups on Facebook.

They do everything – but they don’t invest.

This kind of beginner often has quite a lot of money saved up.

Why don’t they begin?

Ironically, the more money you have the harder pulling the trigger can be. 

This investor doesn’t feel safe. He or she is afraid of making mistakes. They are very good at saving because they fear mistakes in real life too.

What this investor needs is a guide to lean on.

2. Not Having an Emergency Fund

Then there is a completely different kind of newbie who is more risk tolerant and invests every single penny from the beginning. They forget to keep some money for rainy days and catastrophes.

Why is that a problem?

Life is full of unexpected twists and turns.

You could get fired; you could get sick; someone in your family might need you; or your car could break down.

They say that misfortunes never come alone. 

So of course you would lose your job in the middle of stock market crash, forcing you to sell stocks at a loss.  

How big should your emergency fund be? Around three months expenses is good.

3. Not Investing Enough

The power of compound interest is magic. But it’s only a little magic if you invest a little money. In order to become financially free, you have to invest more than a little.

Many articles have been written about how far you can go if you stop drinking latte and invest the money instead.

But really, using your latte budget is not nearly enough.

How much is enough? Well, you can easily calculate that with a spread sheet and a simple formula, and I could do that for you during a strategy call. It’s very nice to know your numbers and know what you need to do to get there.

But until you have your goal set and your monthly target, I would say invest as much as you can. The more you invest now, the sooner you will get there.

4. Not Thinking About Tax benefits

Most people simply don’t give taxes much thought. But you should.

Taxes are going to be your largest single expense. They are worth thinking about and optimizing.

In every country there are accounts that allow you to invest with tax benefits. These are typically retirement accounts like Roth IRA in the states (investment made with taxed money, but payment is tax free) or 401K which are typically matched by your employer.

Some countries also have a system for investing your normal savings with lower or no taxes. In the UK this would be an ISA account. You don’t have to pay taxes on the dividends and returns as long as you stick to the limit of how much you can place in your ISA that year (in 2020 it is 20k).

The rules will be different from country to country, so you will have to figure out which tax efficient accounts are available where you live.

My general advice is to use them.

5. Not Figuring out if it is Cheap or Expensive

There are two main types of beginner investors.

There are those who buy shares based on how they have performed in the past. Before investing in a fund, they will look at how much revenue it has made annually the last five years, and they will buy the one with the largest increase. In a way that makes sense, but really it doesn’t – they risk buying at the peak. 

This type of investor has more or less the same system for individual stocks. If it has gone up, it must be good and must continue to go up.

The problem with this kind of thinking is that you cannot extrapolate the past into the future, and they often buy stocks that are very expensive. They also risk buying at the peak and losing a lot of money when the market falls. 

Then you have the other kind of newbie who get the idea that you should buy low and sell high, so they go for what has dipped recently.

But the problem with that is that they still don’t look at the value of the company. Just because something has fallen in value, it doesn’t mean that it’s cheap.

You really have to look under the hood to see what’s there.

If you want to learn how to calculate the value of a company you can learn to do that in my free e-book here.

6. They Lack a Strategy

Some buy stocks and shares the way they shop in a flea market. They randomly notice something and buy it right away.

The problem with shares is that they are so easy to buy. You just open your laptop and push a button. or you can even use your phone.  

The beginner investor might have heard about a company in a podcast. They might have read some strangers eulogy of it in a Facebook group. Or maybe they copy their neighbor’s portfolio. Oh, yes. People do that.

You have to have a strategy, and I will recommend two you can chose between here.

  • If you know that you are not going to research individual companies, I suggest you stick to index investing with ETF’s (Exchange Traded Funds). You should do that through the method called Dollar Cost Averaging where you invest the exact same amount into the same fund every month.
  • If you would prefer to know exactly what your money is doing, would like a greater return – and also know that you  would enjoy researching the companies, I suggest you learn about value investing. This is where you buy stocks in companies when they are on sale in the stock market and sell them again when they are overpriced (or keep them in your portfolio). You can learn about this method in my free e-book.

7. They Seek no Guidance or Education

No one drives a car in traffic without taking lessons and getting a driver’s licens. No one climbs the Himalayas for the first time without preparing and bringing a guide.

Yet, many people believe that they can climb the stock market and read the traffic signs all on their own. The quickest and easiest way to make a good return from investing is to learn from others who have had success doing it.      

Do you want to learn how to evaluate and calculate the value of a company? I teach you how to do that in my e-book Free Yourself. You can download it here.  

Three Reasons to Invest Even if You Have Debt

Three Reasons to Invest Even if You Have Debt

Should you pay off all your debt, before you begin to invest in stocks? 

This questions pops up often, and the answer depends on your situation.

If you have a lot of debt, and if it’s very expensive debt like credit card debt, then the answer is no.

Pay your debt before you begin to invest.

But if you debt is of the healthy kind with a low interest rate and if it used for building or purchasing some kind of asset – like a mortgage or a student loan- then the answer is yes.  Begin your adventure into stock investing even though you are still paying of the mortgage or student loan.

If we all waited with investing until we had paid our student debt and mortgage, then we would miss out on the stock market almost until we reached retirement age. 

Here are three simple reasons for investing before your debt is completely gone: 

Reason no. 1: Your return will be bigger than the interest

If you can make more money investing than you actually pay in interest on you debt, then you make a profit. Go for it. Invest. 

But in the opposite case, you should stay away from investing. In other words, if you are not sure that you can make more money on the investment than you pay in interest on your debt, then stay away.

Lets be specific. If you pay 3 percent interest, and if you feel confident that you can make an 8 percent return on your investments then go ahead.

But lets say that you pay 15 percent in interest and you think you can only make 4 percent in return on your stocks – then you are losing money, and you should not invest before the debt is paid off. 

How high will the return on your investments be?

That depends on how good you are at picking stocks. 

Stocks gives you an average of 7-8 percent in return if you invest in indexes (the stock index S&P 500 has given a return of almost 8 percent since 1957).

Reason no. 2: You get valuable stock market experience  

Investing is a skill that takes time to learn.

It makes sense to get into the markedet at an early age. You take advantage of compound interest which means that your return will make a return and your money will grow exponentially. So will your experience and your ability to make a good return on your investments.

You can learn some stuff from investment books, podcasts and Youtube-videos, but you really learn the most from practicing it and getting some real world experience in investing.  A combination of learning from books and courses and getting practical experience is the best combination.

If you wait until you have paid your whole mortgage down, then you loose a lot of valuable time learning.

The great news is that you will learn regardless of how much money you invest, so you can begin with a little money until you feel more confident. 

Reason no. 3: It is motivating to invest  

It is fun and fascinating to see your money grow. That is very motivating when you are trying to save money, pay off debt and manage your finances in general.

You will want to have more money, make more money and save more money once you get started on your investing journey.

I would go so far as to say that you will regret it later, if you don’t get started now. When you discover what your money could have become, you are going to wish that you had known this when you were younger.

If you want to learn how to invest like the best, I can read my ebook here.

You can begin with this check list with 12 questions you should investigate before you put your money in a company. You can download it here