In many circles, the topic of investing is a polarizing one. It conjures up images of an all-or-nothing outcome, and pessimistic people aren’t so keen on the idea of potentially losing their hard-earned money to speculative endeavors. But, in reality, an overwhelming fear of investing is irrational. The sooner you overcome your anxieties and reservations, the faster you can start reaping the rewards that so many others before you have had the chance to harvest.
Pushing Past Your Fears
A healthy dose of fear is always a good thing for investors. It keeps people honest and prevents lazy, irresponsible investments that could prove to be financially detrimental down the road. But too much fear will keep you out of the investing game altogether – and that’s equally as lazy and irresponsible.
Acknowledging that you’re fearful of investing is the first step. But once you’ve come to terms with it, you can shift your attention toward smashing these fears and enjoying the benefits that come from a smart investing strategy:
1. Adopt a Long-Term View
Investing isn’t something you do in the hopes of getting rich quick. If that’s what you’re trying to do, you’re better off playing the lottery. Sure, you can have a year in which you make 20 percent, but you can also have a year in which you lose 20 percent. So if you’re on the 12-month investing plan, then you’re probably right – investing is very risky.
Investing should be done with a long-term perspective. If you adopt this approach, you’ll see that there’s very little risk involved.
The S&P 500 Index has never lost money over a 15-year period. In fact, the worst 15-year return is 3.7 percent per year. The best 15-year return is 20 percent per year. If you zoom out and look at the S&P 500 Index over a 20-year period, you’re even less likely to lose. The worst 20-year return ever recorded was a 6.4 percent average annual return. The best was an 18 percent annual return.
2. Understand the Risk of Not Investing
If you want the real truth, not investing is far riskier than investing. The average inflation rate over the last 60 years is 3.7 percent. In other words, if your money sits in a non-interest bearing account, it’s going to lose close to 4 percent per year. Over 10 or 15 years, this can erode your savings and negatively impact your financial security. Even investing in conservative CDs and bonds can leave you upside down. In order to come out on top, you need to make investments with real earning potential.
3. Seek Out Expert Advice
Investing isn’t something the average person should do on their own. If you’re fearful of investing because of the unknown, you aren’t alone. You can counteract this by seeking out advice from experts who know what they’re doing.
To mitigate risk, surround yourself with two or three different financial experts, keeping in mind that not all investment strategies fit all investors. It’s recommended that you have an investment advisor, tax professional, and insurance agent on your team. This will balance out the advice you receive and counteract any poor suggestions you receive from one individual.
4. Diversify Your Investments
Diversification will always be an integral component of smart investing. It’s best to avoid single stocks and to instead spread your portfolio out across a handful of index funds and proven growth mutual funds. As you near retirement, you’ll also want to think about moving into some securities and bonds.
5. Embrace Reality
Here’s the thing: Investing does carry some risk, so you shouldn’t be surprised when you lose money every now and then. There will be years where your portfolio absorbs big blows. But there will also be years when see huge positive spikes. In the end, they all tend to even out. Over a 30 or 40 year investing span, you can expect smart investments in index funds to yield 6 to 10 percent annually. That’s what the history books tell us.
Embrace Healthy Risk-Taking
Smart investing is all about healthy risk-taking. Nobody is saying that investing is risk-free. However, it doesn’t have to be something that freaks you out. With the right mentality, investing can become a normal rhythm in your life – a rhythm that allows you to build wealth and discover financial freedom.