In my last few articles I have spoken about how clients of mine have overcome their fear of investing. They overcame limiting beliefs and created investment portfolios with stunning results! And it only took them a few sessions with me to get to this point. But I understand that many people have limiting beliefs about investment. These beliefs are holding them back. I know because I used to have those same beliefs.
I’m going to address those beliefs here and help you to overcome them.
1. I don’t know how to invest or where to invest.
This is one of the key limiting beliefs. Many people tell me that they don’t where to invest or how to invest. I had this same belief. But years of study and working in the investment field eradicated this and other limiting beliefs for me. Obviously, the answer to this is to gain knowledge. And it is this knowledge that I provide.
2. It will take me years to accumulate the knowledge to know how to invest.
Nothing can be further from the truth. I spent years accumulating this knowledge. Most of it you don’t need. All you need to do is find the right person to help you. Most of what you need to make your first successful investment decisions can be taught to you in a few hours. Check this article and this one to see how my clients have quickly begun investing.
3. I struggle to cope with uncertainty.
We all do. Uncertainty is one of the worst emotions for a human being. It leads to self-doubt and makes you feel fearful. Worse, it can make you regret making decisions or cause you to put off important decisions. The key to defeating uncertainty is to have a reasonable and adequate basis for your decisions. You need a rational framework that supports your decisions. This allows you to be certain with your choice.
4. I’ve lost money before.
I have too. You will definitely lose money. Even if you keep your money in the bank. But if you invest your money in a diversified portfolio you can minimize your risk of loss and feel certain that you will recover any losses. I lost money in the financial crisis of 2008. And I made it all back and then some. Don’t let beliefs like this one hold you back.
5. Won’t my investment disappear in the next economic collapse?
It depends on your investment. There were people in 2008 who had put all of their money in a single real estate deal that failed. They lost everything. I heard about bankers at Lehman Brothers who put all of their spare cash in Lehman stock. This was years of accumulated bonuses and savings from their undoubtedly large salaries. They then borrowed more money and invested that as well. Lehman Brothers went out of business and these guys went from millionaires to paupers overnight.
They were overconfident…
These bankers suffered from some more dangerous and reckless beliefs. They were overconfident and suffered from familiarity bias. They thought that they possessed greater expertise and knowledge than the average person. And they thought they knew their employer. Unfortunately, they did not.
You are wiser!
But you’re not going to do anything so crazy. When you invest, it will be into a diversified portfolio. The portfolio will be diversified across assets like stocks, bonds and commodities. It will also be diversified across geographical locations. It will include the US market, European and Japanese stocks and emerging markets. Asset and geographical diversification increases returns and reduces the risk of loss.
Even if you invested everything in the S&P 500 it will still be unlikely that you would lose everything. The S&P lost 38% of its value in 2008. This is bad but its not all of its value! And since then the S&P 500 has gained 248% or an average of 16% per year.
It’s very unlikely that your investment will disappear in the next economic collapse.
Its really important to understanding what the stock market is. Its really an indicator of how well the economy is doing. There will be times when the economy is depressed. However, when you look back over economic history you can see that the periods when the economy is growing are much longer than the periods when the economy is shrinking.
Why does the stock market crash?
The stock market tends to suffer rapid falls in price because of human nature. Extreme events trigger the fight or flight response in the human brain. With stock market crashes, it’s the flight response that is dominant. Very few people stay to “fight it out” so to speak. But those that fight (remain in the stock market) win.
those that fight win!
The “fight” response is dominant in those who are confident that they can win. And why are they confident? Because they understand how the stock market works (in a broad sense). They know the history of the stock market. Also, they draw comfort from the fact that they have invested in a rational manner. And they are using an investment framework. They experience short-term losses. But they have a long-term view. They know that given sufficient time, the stock market will recover.
Their losses will be overcome and they will have a positive return in the long run. And so will you.
6. I’m never certain that I’m being given sound investment info
This is a huge problem. We all face this problem whether we are learning about investment, losing weight or what to eat, etc. There are so many opinions. Everyone seems to be trying to sell you something. How do you sort this out?
Forewarned is forearmed.
You can only sort this out by accumulating knowledge. Forewarned is forearmed. For example, imagine you were going to buy a car. Would you step onto the dealer’s lot knowing absolutely nothing about their cars? Would you start looking for a car without even knowing what car would suit your needs? Without even knowing what your budget is? No, you wouldn’t.
Invest like you are buying a car…
Investment is exactly the same. You need to know what you want to achieve. You need to know how much you can contribute. And you need to know what investments will help you achieve your goals. I have covered this in detail in previous articles. If you read through the complete series of articles you will be more than well prepared.
This preparation means that you won’t fall for any of the many scams out there. And when you approach someone to learn more about investment principles, check into their background. Do they have professional credentials? Are they in compliance with regulations? How many years of experience do they have? Are they open and transparent when you ask them questions? Is what they offer, too good to be true?
If you ensure you have knowledge of the basics of investments and you ask these questions you will be ahead of 80% of people.
7. I’m wary after reading the small print
We’ve all read the small print that stipulates, investments can go up as well as down. This makes potential gains seem not worth taking the risk. Most of us are risk adverse investors. We don’t want to risk our life savings in some crazy investment scheme. Like those Lehman Brother bankers did. After all, if it can happen to the experts it can surely happen to us?
That small print is merely giving you the facts.
Yes, it can. But not to you. The mistake that those bankers made was to go all in with one investment that frankly, they did not understand. That small print is merely giving you the facts. Any investment can go up and well as down. Again, I bring you back to your investment framework. We know that the stock market generally goes up in the long run. It will have periods when it goes down. But because you will create a diversified portfolio combined with a long-term view you do not need to worry about short-term losses.
8. I find myself moving between investments.
We’ve all done it. Tried one thing for a while. It worked for a while (or maybe not at all) and then we started making losses. Some people try foreign exchange (FX). I’m not personally an expert on this but I understand FX to be high risk speculation. It is not an ideal investment strategy for someone new to investment.
Investment hopping
One of my clients tried FX trading. He made a bit of money and then went onto a losing streak. So, he closed the account and made his money back with a jewelry investment. But he then found himself spending the profits. Fast money leaves fast! This was because he had no clearly defined investment goal. He was basically moving money around to make money.
Another client would pick stocks. The trouble was that he had no real analytic basis or defined purpose for buying the stocks. He found that the stock price would go down shortly after he bought it. This didn’t seem to matter whether he bought tech companies like Intel or other top companies which were dirt cheap and others which paid a crazy high percentage on yield (12%!). He felt “sorta Charlie Brown-ish”. “I buy it and it takes a s**t!” he told me. When you have results like these it’s easy to look elsewhere for investment ideas.
Master your mindset and defeat these limiting beliefs!
The trouble both of these men were suffering from began with their mindsets. Because they didn’t have clearly defined goals, they had no focus with their investments. It was hard for them to know which investments would bring them closer to their goals and which ones further away. They were dipping their toes in lots of pools of water but never learning how to swim.
The one thing that drives you towards your goal and prevents you from making these mistakes is having an investment framework that helps you make decisions that you can feel confident with.
The investment framework
This doesn’t have to be complicated. Essentially with this framework you hire the world’s greatest minds to invest your money for you. They do all the hard work. All you have to do is decide what you want. What is your goal?
I have discussed goalsetting at length in previous articles. I also discussed how you work backwards from there to your current situation. After that you chart a part from your current situation, to the future. All you need to know are the fundamental vehicles to use to get there.
These vehicles typically include index funds with investments in stocks and bonds, domestically and internationally. They are developed using the diversification principle. This principle protects you from the risk of loss. They are managed by fund managers who do the hard work of selecting the specific investments.
Understandings your situation eliminates limiting beliefs
You can also keep some money in cash or in commodities like gold. Whatever you do it should be based on your specific situation. Only you can determine what that is. But having a clear investment framework behind you will make this task significantly easier.
But in case you need help, I am available to you. Just tell me a little about yourself and I can provide you with all of the guidance you need.
Keep an eye out for my next post where I draw together all of the key lessons that I have spoken about in this series. This will help you put everything together for yourself. You’ll be ready to being investing and start moving towards your goals!
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