These days, investing is something I do regularly. I like to joke that when friends and I talk about going shopping, they're referring to clothing and shoes while I'm referring to stocks.
But that wasn't always my attitude. In my 20s, I largely stayed away from stocks, because frankly, they scared me. I saw the way my IRA balance would flip-flop from month to month, and it was unsettling, so I was nervous to open a brokerage account and invest my nonretirement money.
But after a while, I realized that hoarding cash in a savings account and CDs wasn't going to cut it if I wanted to grow my money in a meaningful way. And so I finally decided to bite the bullet, buy some stocks, and hope for the best.
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These days, investing isn't something I fear at all; it's something I both prioritize and embrace. If you're worried about investing, here are a few tips to help you overcome those concerns and move forward.
1. Start small
If you're scared to invest, you probably shouldn't empty your $40,000 savings account and dump it into the stock market. And you don't have to. If you're nervous, ease your way in, the same way you might dip just a foot into a swimming pool at first if you're scared of the water.
In fact, one mistake you shouldn't make in the course of investing is putting money you might need within the next few years into stocks. Specifically, you should make sure you have around six months' worth of living expenses in savings before you invest. But from there, you don't have to put all of your excess cash into stocks. Start with a few hundred dollars and see where it takes you.
2. Have a strategy
Investing isn't something you should do blindly. Rather, map out a strategy so you know where you want your money to go. You might choose to invest in growth stocks, value stocks, or a combination of both. Or you might choose to focus on dividend stocks so you have income flowing in on a regular basis. The key, either way, is to have a plan -- even if you adjust it after the fact.
3. Diversify
A diversified portfolio is an especially important thing for a fearful investor to have. The more stocks you own, the less likely you are to see substantial losses when a single company fails or a specific industry starts to struggle.
You can diversify by buying stocks from different market segments or by buying index funds. If you purchase an S&P 500 index fund, for example, you'll essentially own a piece of the 500 largest companies trading on the market. That way, if one or two lose value, it likely won't impact your portfolio all that much.
4. Plan to hold your investments a long time
People who buy stocks with the goal of selling them for a quick profit tend to get burned. On the other hand, if you hold onto your investments for many years, you're likely to come out ahead financially. Though stock market downturns are common, rebounds are equally common. Hold your investments a long time, and you won't risk the losses short-term investors tend to get stuck with.
Investing for the first time can be a nerve-wracking process, because there's inherent risk involved. The flip side of that risk is an opportunity to grow your money into a very sizable sum in the long run. While you can't snap your fingers and erase your trepidation, the right approach to investing could make you a lot more comfortable with it.
