When you have worked hard to save money, maybe paying off tens or hundreds of thousands in debt, cutting non-essentials from your budget, living simply and making frugal choices, the step into investing is daunting. It is a decision between holding on to money that you have, and risking it for the prospect of more.
It is natural to feel this way. Humans would prefer to avoid losses than to acquire gains. In other words, the negative feeling of losing £10 is stronger than the positive feeling you’d get from finding £10. This is called loss aversion.
Loss aversion might be stopping you from investing. It probably is, as it’s protecting you from losing money. Funnily enough, it’s causing you to lose money too, through inflation. Finding a savings account that even matches inflation in a pretty tough ask right now, and even if you can, it’s almost certainly stopping you gaining more.
You need to recognise this and take steps to change the way you think about investing.
Here are my tips for gaining the confidence to start investing:
Whilst you’re learning, the experience is going to be pretty stressful if you throw a massive wadge of cash that you need to live off. Even if you have larger amounts, its less risky to funnel money into the stock market over a period of time to smooth out any dips. And, I like to spread my investment over a variety of different funds in different geographic regions.
Choose passive funds
My first investment was a passive fund that invested in FTSE 100 companies. It’s not as exciting as choosing individual companies or trying to seek out a high performing, actively managed, specialist fund. But it’s safer.
Don’t worry about losses (too much!)
It sounds counter intuitive, but you need to accept your portfolio will dip at times. When I made my first £500 investment (a lot of money to just lose but not a lot to invest) I figured investing had stopped it from getting spent, which would be a 100% loss, so losing some in an investment wouldn’t be so bad.
Having this attitude has left me feeling calm, even on days when my portfolio is down 20% (right now, it’s positive by about that much).
If you see a loss and sell immediately, this is a sure fire way to lose money on investing. However, riding it out gives your investment time to recover and flourish and instead make money.
To be honest, that’s all the advice I got. Oh, having a grasp of the basics helps, so if you haven’t already, check out my other posts in the Investing: A guide for beginners.
I’m not a qualified professional, decisions you take are your own (unless you’re paying someone for advice!) but I’ve read, read, read what I can on investing and it’s now literally paying dividends.
Need to do more reading? Here are some articles that helped me:
What to do about this scary stock market from Mr Money Mustache
Get unstuck: The freeze response in finance from the Escape Artist
How scary can investing be? from Monevator
All three of these blogs have an absolute shed load of other helpful articles so whether it’s knowledge or confidence you need, I bet you’ll find an article to help (I know I have!)