The following is a guest post from rockstar financial planner and writer Leah Manderson. Please join me in welcoming her to the blog today!
Shortly after leaving my full-time job to pursue my own business full-time, I dutifully commenced the task of rolling over my 401(k) to an IRA. I was feeling pretty self-congratulatory about this at first. “How very grown-up of me to roll over my 401(k) instead of letting it sit! I am taking control of MY money, thankyouverymuch. I will invest this in something good.”
When all the papers were processed, I had darn-near exactly $10,000 in my Rollover IRA. It was probably the most money I’d ever invest in one shot, so, naturally, I wanted to do it right. I pulled out my calculator and went through all the steps of my 6-step investing process.
After maybe 10 minutes, I had figured out exactly which investment I would choose. I clicked through my Schwab account, put in my order, hovered my mouse on the “buy” button…and then had a thought.
“Maybe I’ll just wait it out for a day or so. See what the stock market does. No need to rush to invest it just because it’s in the account!”
Days later, however, I still hadn’t made the investment. I was procrastinating. My chumminess had turned into fear. Yep, I do this for a living. And I KNOW to make an informed decision. I studied Investment & Retirement planning through my Certified Financial Planner course. And gosh darn it, I’m a Registered Investment Advisor—meaning I’ve passed a regulatory agency test, and hold an official government-enforced license to give investment advice!
But I’m also a human. And I was up against some true-blue investing fears that hit virtually ALL of us when putting our money in anything that’s not “a sure thing.” Here’s what I was fearing, plus the thoughts I used to overcome those investing fears…
Investing Fears #1: What if now is a bad time to invest? What if the market goes south from here?
You’d be hard-pressed to find a single person on the planet who isn’t scared of losing money, and the thought of putting in $10K—and watching it fall even a little bit—well, sucks.
Overcoming the investing fears: I reminded myself that my goals for this money are nearly 40 years out. Over the past 40 years, the stock market has returned about 10% on average. Some years during that time, stocks have gone up by 35%, and other times, stocks have gone down by 35%. However, I’m not investing for a year. I’m in this for the long run, and I still believe (even under my fear of losing money) that stocks go up, given enough time.
Investing Fears #2: What if there’s a better investment out there?
There are hundreds, nay, thousands of different investments I could chosen from. With a little more research, could I have found a fund that was just *this much* better than the one I was leaning toward?
Overcoming the investing fears: Perhaps yes, but it’s not worth my time to research every single investment opportunity available. It would take years! Decades! And that’s just too much time to wait!
The time value of money says that money today is more valuable than money tomorrow. It’s more important to get started early and modify as you go, than to wait until you know everything.
Investing Fears #3: Is this too much money for ONE investment?
If you’ve ever read any beginner’s primers on investing, you’ve likely heard, “Don’t put all your eggs in one basket!” Putting $10K into a single investment definitely felt like putting too much money in one basket!
Overcoming the investing fears: When I ran the numbers on how that investment would fit into my overall investing strategy, that amount was right on target. (You can do this, too—it’s math even a 5th grader could do!)
Which brings me to…
Investing Fears #4: What if my “safer” strategy is all wrong? Should I try something risky like choosing individual stocks or options? That could pay off big!
As a financial planner, I strongly believe in having an investment strategy that guides your decision making. A strategy based on your goals and investing personality, among other things.
Overcoming the investing fears: While I definitely want to try my hand at some riskier stocks one day, I think I’ll do that with money I can easily afford to lose—not my future retirement money!
In the end, I decided to invest my money in a small cap index fund that fit my bigger investing strategy (asset allocation).
My fears of losing money actually came true, when the stock market went down right after I invested. I didn’t like it, necessarily, but I was surprisingly unfazed. I’m planning on holding this for a very long time. And 40 years from now, that small drop will be erased by many good years of returns.
At the end of the day, it’s totally normal to have fears about investing—even a financial planner gets antsy sometimes.
I like to think, however, that all of these investing fears are a reminder to get back to the basics of investing: build a plan, stick it out through all the ups and downs, and invest early and often.
It really doesn’t have to be so scary after all.
What Fears Keep You From Investing?