Look, I used to be about as risk-averse with my money as it gets. Stocks overwhelmed and confused me. I always heard people say to invest, but I felt like every time I tried, I just got more and more confused. It seemed like every financial article relied on other financial terms, and when I tried to look up all the terms, the definitions were all just OTHER financial terms, and I would get scared and give up every time.
From talks with friends, this is actually a step further than they even took. They tell me they were so scared of the stock market they have never even bothered to do research. It’s too risky! They say. Or I don’t know how. (which really means I don’t know how and I don’t want to learn).
Finally, I broke down and read a bunch of books and got it. Now, I’m excited to invest. I put about 75% of the money I save into investments every month. I am prepared for anything to happen!
Here’s how to feel less fear every time you invest:
Get yourself educated about how investing works
Bankrate conducted a survey in 2016 shows only 33% of millennials own stock. Out of the people that aren’t investing, 25% of millennials say it’s because they don’t know how.
I completely understand this. Every time I tried to invest in stocks, I would get completely overwhelmed and discouraged. However, once I got the hang of it, it’s SUPER easy. The lingo and financial terms are really confusing - but the concept of investing is really simple in itself! I truly think every person can and should invest successfully in the stock market.
You don’t have to learn every little thing about the market, but you need to have a basic knowledge and understanding. Once you learn this, you will be able to successfully invest in the market.
You don't need to know as much as you think you do
I know I just said you need to educate yourself. But you don’t need to stress out and learn every single thing about every single company in the market. There’s a sneaky little thing called an index fund that allows average folks like us to just make 1 stock purchase and have a diversified portfolio.
Warren Buffett, the richest and most famous investor of all time, gives out the advice frequently that the average investor not only doesn’t need to learn every in and out of every company but shouldn’t waste their time. Buffett suggests simple index fund investments for all.
If you’re a total newbie and have no idea what that even means, here’s an excellent article from the Motley Fool that breaks down everything you need to know about index funds.
People sometimes think that you have to know a lot about a lot of companies to determine what to invest, but this is not true. That is way too hard. Who has time to invest exactly what companies are going to make money in the near future?
Investing in individual stocks is why people think investing is “risky” and “hard”. Investing in index funds is neither risky or hard.
You have the money to invest
Another reason people don’t invest is that they don’t believe they have the money. From the same Bankrate survey mentioned above, a whopping 48% of millennials don’t invest because they think they don’t have the money.
Guess what - you don’t really need much money! Some stocks you can buy for quite cheap.
Anyway, it’s not about how much they cost you now - it’s all about the ROI. Even if a stock seems expensive, you cannot let that stop you from buying it. It’s all about the future return on investment that stock would give you.
If you legitimately don’t have the money, then learn new habits to continue to save. Save up until you can afford the stock that you want.
Understand the stock market WILL go down - but time resolves all issues
The stock market has crashed in the past and will crash in the future. Do not let this scare you! Here’s a picture of the stock market:
Just looks like a nice, steady line up...right? Well, take a look closer! This line clearly includes the Great Depression and 2008 recession! In the grand scheme of time, they just look like little blips on the radar.
Every single time the stock market has crashed, it has come back up again.
If you’re investing and have another 20 years to let that money grow (aka you’re under 40 years old) then you can afford to use time as a buffer. Time will be on your side.
If you have about 10 years until retirement, it might be safer for you to put more of your money into bonds and not stocks. They have a slower growth rate but are generally more stable.
Don’t check the stock market every day
Now, you KNOW that your money will recover even if the stock market tanks. You see it in the graph above. However, this does not stop people from freaking out. The stupidest thing you can do is to take your money out of the market. People see a lower number then they had been hoping for, freak out, regret investing, and pull all their money out. If you do this, you’ll miss out on all your returns!
It’s easy to get discouraged or freak out if you check the market every day. Trust the process. It will go up.
Warren Buffett has had generally the same stock holdings for years and years. He doesn’t time the market and pick the exact moment he thinks a stock is great and sells, and re-buy, and sell again. He just buys secure index funds and holds them for decades.
Investing without emotional reactions to the stock market is the best way to successfully invest.
Investing is NOT gambling
If I told you I was making an investment in my son’s future, you would assume I am paying for college or doing something worthwhile to help him succeed. If I told you I was investing in my health, you would probably assume I bought a gym membership. Investing in our future and Investing in our health sound like positive things.
Yet, when we say we are investing our money in stocks, everyone assumes it is gambling. That is simply not true!
You saw the graph for yourself. I wouldn’t call it “gambling” that you’re betting that line will continue to go up over time. As long as you invest in the market itself, you will be fine over time.
Investing is the only way to secure a strong financial future
Having a savings account is nice, and it’s a fine step forward. But it’s not going to launch you into a secure, financial future. Because of compound interest, the stock market will grow your money to significant amounts that would be ridiculously hard to earn on your own. Through saving, you will never be able to reach the same numbers.
Let’s say you save $500 per month for 20 years. Here are 3 different scenarios:
- Big Bank Savings, 0.00%: $120,000
- High Yield Savings, 1.85%: $155,101
- Stock Market, 7%: $288,034
In each scenario, you input the same exact amount of money, $120,000 in total. It is clear that investing is the only way to secure your financial future. It’s non-negotiable. Your money more than doubles...and 7% is a pretty conservative return!
This is called making your money work for you. Instead of slaving away every day at your boring job, you simply selected a different savings vehicle for yourself and more than doubled your money - without doing any more work!!
Take steps to start investing today
Investing is an important step to take for any financial future. It is the only way to secure a healthy financial future. If you think you are ready to begin investing, follow these steps!
First, if you have a company match, make sure you are at least investing their match percentage. It is common for companies to match anywhere from 3-6%. It is an automatic 100% ROI on your money and is a very smart move to make.
Second, make sure to pay off any and all debt - especially debt with high interest rates. If you have credit card debt where you are paying 20% interest, there is no use putting money in the market where you will gain an average of 7%. Even if the interest on your debt is lower than 7%, I still recommend paying off debt first.
Third, begin investing! It is smart to use your company’s 401k or another tax-advantaged account, like an IRA. Seriously, investing in the stock market is the only way to secure a financial future. The younger you are, the better you can leverage compound interest and become really rich when you’re older - even if you don’t put in very high initial investments. Every year you wait can cost you hundreds of thousands of dollars. Take the steps you need to invest today!