Are you afraid to put your money into the market? Here are some tips to overcome your fear so you can put your money to work for you.
Investing money in the stock market is one of the single best ways to grow your wealth. Historically, the stock market has reliably produced better returns over time than real estate, bonds, certificates of deposit, or other investments.
And, you need to earn a reasonable rate of return on your money if you hope to accomplish big goals, such as saving for retirement. Otherwise, if you just stick your cash in the bank, it could actually end up losing value due to inflation.
Unfortunately, many people are afraid of investing, and are reluctant to get their money into the market where it can work for them. If you’re one of them, here are some tips and tricks to get over your fear of investing.
Educate yourself on simple investments
Investing can seem scary when you don’t know much about it. After all, there are all different kinds of investments to learn about, including individual stocks, mutual funds, and exchange-traded funds. There are also many investing terms you may not know, such as price-earnings ratio, or moving average, or options, or arbitrage.
The good news is, you don’t need to know that much to get started. For a beginning investor, investing in index funds is a simple approach to building a diversified portfolio without advanced knowledge. Index funds are simply funds that attempt to match the performance of a group of assets or investments. For example, you could buy a fund that matches the performance of the Dow Jones Industrial Average, which is an index that tracks the performance of 30 large U.S. companies.
If you learn a little about index funds, and invest in a few of them, you can get exposure to a broad range of diverse assets without having to research individual companies. You can always learn more about picking specific stocks later, once you’ve seen your index funds perform and are feeling more comfortable with the investing process.
Learn more about the benefits of diversification
Fear of losing money is one major reason that many people don’t want to invest. But, you can minimize your risk of losses by diversifying your investments. Diversification means you don’t put all your eggs in one basket -- you invest in lots of different things so that if one investment performs poorly, others may do well and compensate for your losses.
Building a diversified portfolio doesn’t have to be hard -- especially if you’re investing in index funds. You can pick an index fund that tracks the performance of large U.S. companies, another that tracks the performance of midsize companies, another that tracks smaller companies, another that tracks bonds, and another that tracks emerging markets. By doing simply this, you’ll have your money invested in all different kinds of assets, and chances are good that at least some of them will perform well over time.
Start small and watch your money grow
Putting a ton of money on the line at one time can be scary. Fortunately, you don’t necessarily have to invest your entire nest egg at once. You can start by investing just a few hundred or a few thousand dollars. As you learn your way around your broker’s website and you get better at understanding different investments, you can put more money into your account.
You don’t want to invest an amount so small that the commissions you pay to buy stocks eat up any profits. But, you can buy commission-free investments that track market indexes, such as exchange-traded funds -- which would mean you don’t pay each time you buy in.
Choosing commission-free investments gives you the chance to start investing with a smaller nest egg. As you see your money grow, and become more comfortable, you can increase the amount you put into the market.
You can’t afford to be afraid to invest
Fear of investing could actually cost you your financial security, because you’ll lose ground if you just leave your money in the bank to earn little or no interest. It’s worth taking these steps today, so you can start to feel more comfortable putting your money into the market. The sooner you get started investing, the sooner you can make your money work for you.
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