Everyone is scared about something. Whether it is about flying or significant life changes, there is not a single person who doesn’t hold back in front of something that appears scary and insurmountable.
Even though investing is an ancient human activity dating back to 1700 BC, with the Code of Hammurabi (1700 BC) providing a legal investment framework and guideline, it is still a source of anxiety for many people.
The only source of income are work and investments, so why are we often scared about opting for the second alternative? Most people would say that it is because it’s risky, but so is driving or making a big decision regarding work. There is something about the world of investments that makes it look untouchable and incredibly dangerous. It might be the emotional fear of failure, or the very rational fear of losing money. The only way to reduce the risk, and therefore the fear, is to understand the cause and effect of the investing decisions we make.
Below some tips to manage your fear about investing.
1. Knowledge
Learn, study, ask for help and explanations. By understanding the fundamentals of investing you will reduce the risk that goes with it. You can also think about specialising in a specific area and become more aware of the evident traps and scams. Knowledge will definitely replace fear.
2. Ask for people’s help and advice
You can address an investment advisor or simply ask people who have already invested. Are you afraid of numbers? An advisor can help you calculate the terms. Take your time to understand every single passage and don’t be scared to ask for further explanation. The more you learn about investing, the better you will be at recognising good advice.
3. Get ready in advance
The best time to learn about investing is when you don’t actually have money. You certainly don’t want to be a beginner playing with personal savings you might lose.
4. Weight the risk
Think about how much money you can afford to lose without it altering your lifestyle. If you decide to invest in equity crowdfunding, even if the risk can be higher than other forms of investment, the maximum amount of money you can invest by law (AUD $10,000 for a retail investor) is reasonably low, making the risk much more manageable.
5. Be confident
You don’t need to jump straight into the most ventured investment, start researching well-established companies to gain some confidence.
6. Diversify your portfolio
Once you become confident enough, stop focusing in what makes you most comfortable and start diversifying your portfolio in order to find the balance between risks and returns, spreading your money across different investments and sectors.
7. Make the difference
You can fight the fear by focusing on ethical or socially responsible investments.
8. Focus on your goals
Change or adjust your financial plans based on your needs and goals and not because of something you have read, seen on television or heard from friends.
In conclusion, don’t be limited by your fears, act and face them! Learn as much as you can, calculate returns, diversify your portfolio and find out which risk measure is right for you. It’s not about taking risks with your eyes closed, but about smart and responsible investing.