What to Know Before You Invest If You're Scared to Lose Money
I get it. Investing can be a daunting prospect, especially for women who may feel unprepared or anxious about the potential risks. Only 26% of women surveyed by Fidelity Investments reported that they feel confident in their investing abilities. As a wealth coach, I understand these concerns and want to provide you with the tools and knowledge to overcome this fear and start building your financial future confidently. So in this blog post, we'll explore the reasons behind the fear of investing, the benefits of putting your money to work, and practical steps to get started.
Understanding the Fear of Investing
The fear of losing money is a significant barrier that prevents many women from investing. This apprehension often stems from a lack of understanding of how the stock market works and the volatility associated with it. Media reports of market crashes and economic downturns exacerbate this fear, making it seem like investing is a gamble rather than a strategic financial move.
While it's true that the stock market can be volatile, the chances of losing all your money are slim if you invest wisely. Market fluctuations are normal, but over the long term, the stock market has consistently grown (see image to the upper right). The average stock market return is about 10% per year for nearly the last century, as measured by the S&P 500 index. By understanding market cycles and the importance of diversification, you can mitigate risks and protect your investments.
Now, let’s explore the reasons why I see investing to be more beneficial than harmful before we dive deep on how to reduce the fears around investing below.
The Benefits of Investing
1. Buying Back Time Investing allows your money to work for you, growing your wealth over time without requiring constant effort. This compounding growth can significantly accelerate your path to financial independence and retirement.
2. Building Wealth Faster Savings accounts offer minimal interest rates that often fail to keep up with inflation. Investing in stocks, bonds, and other assets can provide much higher returns, helping you build wealth more quickly.
3. Beating Inflation Inflation erodes the purchasing power of your money over time. By investing, you can ensure that your money grows at a rate that outpaces inflation, preserving and increasing your wealth.
Sidenote: Let’s also keep in mind the art of diversification. This is key to managing risk in your investment portfolio. By spreading your investments across different asset classes, industries, and geographic regions, you can reduce the impact of any single investment's poor performance on your overall portfolio.
Types of Diversified Investments:
Stocks: Ownership in individual companies.
Bonds: Loans to governments or corporations that pay interest over time.
Real Estate: Property investments that can provide rental income and appreciate in value.
Mutual Funds and ETFs: Collections of stocks and bonds that offer diversified exposure.
The 3 Main Things You Need To Know, if You’re Scared of Investing
Educating Yourself
Knowledge is power when it comes to investing. Start by learning the basics of how the stock market works, the types of investments available, and strategies for building a diversified portfolio. Consider taking online courses, reading books, or attending workshops on investing.
Creating an Investment Strategy
Having a clear investment strategy can help you stay focused and make informed decisions. Decide whether you want to manage your investments yourself or hire a professional. Set financial goals, such as saving for retirement, buying a home, or funding education, and choose investments that align with these goals. Also, if you're new to investing, consider seeking help from financial professionals. Financial advisors can provide personalized advice and manage your investments for you. Alternatively, robo-advisors use algorithms to create and manage a diversified portfolio based on your financial goals and risk tolerance.
Investing for the Long Term
One of the most effective ways to reduce risk and increase returns is to invest for the long term. This means holding onto your investments for several years or even decades, allowing your money to grow and benefit from the power of compounding interest. Avoid the temptation to make quick trades or react to short-term market fluctuations, because this rarely will get you to see the results you want.
Warren Buffett, one of the world's most successful investors, advocates for long-term investing. His strategy involves strategically investing in diverse companies over time, allowing his investments to grow and yield significant returns. Buffett's success is attributed to his ability to pick winning stocks and his patience in waiting years to see the positive outcomes. So if he can do it… you can too! He emphasizes that long-term investors need not worry about market volatility, as long-term gains outweigh short-term fluctuations. Are you feeling better now?
Practical Steps to Start Investing
Set Financial Goals: Determine what you want to achieve with your investments.
Create a Budget: Ensure you have enough income to cover your expenses and save for investing.
Open an Investment Account: Choose a brokerage or robo-advisor and open an account.
Start Small: Begin with a small amount of money and gradually increase your investments as you become more comfortable.
Monitor Your Investments: Regularly review your portfolio and make adjustments as needed to stay on track with your goals.
Investing is a powerful tool for building wealth and achieving financial independence. By educating yourself, diversifying your investments, and developing a long-term strategy, you can overcome the fear of losing money and confidently start your investment journey. Remember, the key to successful investing is patience, discipline, and a willingness to learn and adapt.
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