Each night you turn in your bed, churning your cold Forbes billionaire cover dreams upside down. Pondering every move and visualizing all the pitfalls that might arise dare you take the step to invest. You look at the resources you require, time, energy, money and you realize you have to put in more than your entire life to succeed. You promise yourself to start soon, only for the morning sun rays to hit your bedroom window and warm away these dreams, together with the morning dew. This phenomenon can be summed as fear of investing.
In this blog, we discuss five sure ways to dump the fear of investing.
There are two brothers who effectively kill entrepreneurial dreams. They are fear of investing and procrastination. In this blog we discuss fear, and then procrastination will come next. These two investment diseases kill millions of visions daily and are the reasons why we talk about the future, else all of us would have actualized our futures.
The first time I fathomed approaching the love of my life was horrifying. It took me many months of planning and each time I met her and wanted to blurt out the prepared speech, my knees wobbled and my stomach churned. I changed direction to avoid meeting her or just said hi and rushed passed, not even hearing her response.
When I wanted to buy my first plot, I had heard about people who had been conned and or demolitions that had happened and I decided to keep the decision at bay. Stock exchanges have crashed and people lost money. IPO’s have felt like con games. Yet, we must conquer this fear and invest, somehow, or else we will never grow our wealth.
The courageous say, “Feel the fear but do it anyway”.
The prospect of losing money is never appealing. The richest investor in the world, Warren Buffet, gave his managers only two rules, rule one; don’t lose money and rule two; remember rule one, because losing money is not pleasant even to the super-rich.
Nature dictates that you can only gain by assuming a level of risk. You must accept that where there is no risk, there is no gain. Once you acknowledge and accept this simple reality, your mind will work around the fear of investing and you will be able to accept investments with acceptable risk mitigants.
Once you have accepted that all gainful investments come with a level of risk, you must access your risk tolerance to understand what is acceptable to you. There are five situations that make risk tolerance low and hence increase our fear of investing. These are
- Not knowing where to invest your money. In this situation, you need to gain access to knowledge about possible investments in your environment, including reading papers, researching, consulting experienced investors and browsing the net. Staying current with the happenings in your area is the best way to know where to invest and kills the fear. You can get this information by regularly visiting the Financial Matters blog.
- Fear of losing all our money. Your lifelong savings can be wiped by one bad investment in a minute. The best strategy to manage this is to diversify. Allocate your capital among several different investment opportunities relative to the risk and rewards that you foresee. Buy some shares, plots, real estate, mutual funds, insurance, treasury bills etc, just ensuring that not all your eggs are in the same basket.
- Fluctuating Investments returns. You have zero control over market forces. The prices of some investments such as shares fluctuate often. Investments in debt instruments such as bonds and bills have a fixed return agreed upfront. Once you decide to invest in an asset whose returns fluctuates, it is important to remain calm as you watch the movements. If you are in fixed-term instruments, you can prescribe a range of fluctuation beyond which you sell. For example, you set ten percent and if your investment fluctuates lower or above this mark, you dispose of, loss or gain.
- Lack of time to manage the investment. Most of us are or will be employed and therefore investment will be a second source of income. If this is the case, then time will be your constraint. Sign the job off to a fund manager who will invest it in a mutual fund for you and minimize your involvement. In the same breath, the transfer of funds to the fund manager can be automated via banker’s orders etc.
- Buy when everyone selling. The fear of not knowing the best time to invest derails in investment decisions. Seasoned investors buy when prices are low and sell when prices peak. This means doing the opposite of what everyone else is doing. The prices are usually low when many people are rushing to sell and high when people are rushing to buy. You should ride the opposite tide to gain big. Other strategies involve investing a constant amount every quarter to ensure that the fluctuations in price even out.
To effectively conquer the fear of investing, you need an upfront plan on funding and timelines. You need to be clear how much you have for investing and for how long.
You need to also be clear with funding for your daily and emergency needs.
You need to have your investments in both long term and short term instruments that can allow for the flexibility to dispose and to grow. Long-term investments have higher returns as compared to short-term ones, hence provide a bigger growth potential.
Once you have a plan and stick to it, remain calm in times of turbulence, this is the requisite discipline of managing money that you must embrace in order to be a master investor.