5 Steps to Overcome Investing Fear
Today the S&P 500 reached a new all time high, surpassing 3000 for the first time.
Great day to tackle overcoming investing fear!
Let me give it to you straight… Being completely risk averse and financially illiterate are demons haunting even the smartest of men.
If you’re one of the people who still haven’t employed their money to work for them, this post is for you. It won’t only show you where to start, but it will also answer why are you in the position you’re in. Follow the 5 stages below and see which one is stopping you of making your money generate more wealth.
And remember, it’s either you or them. Either you make your money work for you, or you’ll be the one working for them.
Rules of the game
So, this post will include 5 items with the goal of them showing you the reason why you’re not investing your money.
Read each point carefully and the first one that’s applicable to you is the first line of resistance you need to overcome for an abundant future. So, in case you want to change your financial habits, you’ll know where to look and also how to proceed.
So let’s see where you stand.
Level 1 – I don’t have an income stream
Pretty simple – if you don’t have a job or any type of income stream, investing has to be postponed for later.
The good thing is that you’ll have to overcome this stage anyway because you’ll be stuck in an unsustainable model of reality. Eventually the bubble will burst – and investors know that a pop is more severe when the bubble is more inflated. So don’t let it grow.
How to overcome level 1?
For lack of better ideas – get a job.
Level 2 – I can’t save money
Okay, earning is one thing, but we all know that saving is what counts. If you earn $500k and spend $510k per year, you’ll be poor and in debt. I already talked about cutting spending and setting up an emergency fund, so visit those posts if you need guidance.
But yeah, the next step towards investing is having something to spare at the end of the month. Any amount is fine. Every $ you save is way better off in the stock market than in a savings account. Read about how much of a difference can it make in this post.
If you’re stuck in this stage, I’d suggest working on both sides of the spectrum: try to maximize your earning without sacrificing lifestyle, but also cut your spending (which will improve your lifestyle).
How to overcome level 2?
Don’t spend 100% of your income – start saving.
Level 3 – I’m saving for something
So, once we’re above earning and saving, levels before which one shouldn’t even think about investing, we can go in more depth.
The level 3 is self explanatory. If you’re saving for a planned expense, such as buying a house, an apartment, a wedding, a vacation, a car or a T-shirt, then you know your reason of not entering the market.
Not much to say here, it’s a matter of priorities and there is nothing wrong with treating yourself or improving your lifestyle.
However, after you do your purchase, don’t forget the healthy habits you developed in order to stack them dollar bills. If you were able to live on a certain standard, don’t let lifestyle inflation destroy your financial future – keep saving a portion of your income.
After establishing an emergency fund (maybe a year of expenses), you’ll be left with not much to do apart from invest the rest.
Think about it, with no big purchases coming your way, you shouldn’t feel that big of a difference when having $50k or $100k in cash. But you will feel a difference if you invest the excess amount. To give you some motivation: a recurring phenomena this year is that my girlfriend and myself are saving amounts higher than our salaries, after accounting for all expenses. In other words: the gains exceeded / covered our expenses and we saved >=100% of our salaries.
How to overcome level 3?
Keep saving after you treated yourself.
Level 4 – I have no interest in investing
No interest? Buy bonds and get some!
Puns aside, you shouldn’t fear the game. You should fear the risk you’re taking by basing a life changing decision on having interest or not.
I mean, I don’t get it… Are you so enthusiastic about every step you ever took, that you feel like having interest is the key factor in every decision? Did you have interest in being stuck in traffic while driving to meet your friends? You didn’t, but it was the right thing to do – it was about means to an end. Being stuck in traffic made sense for the reward you’d get later.
The analogy is more than obvious for me to even point out.
With that aside, what is there not to be interested in? I mean, it’s not like you need to have a deep understanding of valuing businesses or trading strategies… The beauty of a lazy portfolio, apart from sharing a characteristic with us, investors, is that you can literally let people who DO have interest run the business, while you’re getting your share of the rewards. You don’t have to be interested. You just need to be smart.
Even Warren Buffet says that diversification is protection against ignorance.
But let me try to spark some interest. The following picture shows what would happen with 10000$ in savings versus in an investment portfolio yielding a conservative 4% per year.
Can you guess which line represents which? Check out the post Cash vs Stocks in 30 Years to get a more realistic representation of what happened.
Spoiler alert: they grew to over $170k.
The point? It’s not about interest. If you had a mentor and understood the value, you’d jump in right away. This is about being afraid of seemingly overcomplicated field that only institutional investors could grasp. But that’s not the case… For a few decades already.
Bottom line, a person who sacrifices the scarcest of all resources, that being his time, in order to earn money, has no business in being not interested in growing his wealth. Period.
How to overcome level 4?
Accept the reality – this is a money driven world and it’s here to stay.
Level 5 – I have no knowledge
Of course you don’t. There is no person who has the knowledge and consciously decides to not do it or to not plan to do it.
If you’re one of those – you’re at the right place! Most posts in this format (top 5 lists and the such) leave you with the surface of the theory. This one is no different. However, I will point you to the Become an Investor Project – the only and most structured guide you’ll need in order to start investing. And I assure you, if you have the interest (level 4) and digest the material, you’ll end the day searching for the best brokerage to open an account.
Turns out, it was never about fear. It was actually about lack of conditions or knowledge. Hence, I didn’t recommend meditation or visualization techniques to overcome fear, I recommended practical steps you can take towards your financial freedom.
And in case the market is too hot for you right now, it’s fine – sitting on the sidelines with cash while waiting for better valuations is better than just sitting on the sidelines with cash.
Or you can just cost average.
But yeah, you don’t know what that is… Here you go:
How to overcome step 5?
Learn. And MonkWealth might be the best place to start:
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