It’s no secret that Presidential Elections always bring up concerns about the economy and the stock market. In fact, that’s dominated a lot of the news for the last year.
It’s also no secret that most people, and it seems that especially millennials, are afraid to invest. Earlier this year, Bankrate conducted a study that found that 54% of Americans don’t invest and that millennials, in particular, are wary of trying it.
Let’s be real. People are afraid of losing their money. It’s a valid concern, but it’s one that could hinder us far more than it can help us.
Why this is a problem
Before getting into how to get over this fear, we must first address why not investing is a major problem.
While there are several reasons why you should be investing, I would argue that one of the main ones is because of this little thing called inflation. Inflation refers to the cost of goods going up over time. This means that the liquid cash you have sitting in the bank won’t be worth as much decades from now because it’s going to cost more money to buy the same things.
There are only two ways to beat this. Either earn more money, which is not happening during retirement, or find a way to build wealth in which the rate of return is higher than the rate of inflation.
One of those methods is investing in the stock market. The average rate of inflation in the U.S. is 3.22% whereas as the average rate of return of the stock market is around 7 percent. That’s a 4 percent difference and it’s way easier than constantly needing to earn more (though that’s not a bad idea either!)
So how do you get over yourself and dive in? The fear of investing is an easy one to get over if you consider some of the following points. By taking these into account, you’ll be able to at least start thinking about investing in the stock market.
Investing is a long-term game
Investing is not a get rich quick game. It’s also not gambling. The reality is that the market goes up and down all the time because that’s its very nature. It’s normal for it to do that.
That’s why it’s important to note that investing is a long-term game. That’s also why it’s important to start young. You have time on your side so you can ride out the market dips. You also don’t want to be in a position where you have to play catch-up later.
Diversifying is key
One of the reasons people lose so much money when the market dips is because they put all of their eggs in one basket.
The reality is that even if the market is not performing
I personally invest
You have to keep your emotions out of it
Warren Buffet has a famous quote that says, “Be greedy when others are fearful and fearful when others are greedy.” The more I invest, the more this has become my mantra.
The reality is most people will let their emotions get the best of them and they’ll proceed to do something stupid. The smart investor knows when this is happening and, instead of getting wrapped up in the mayhem, seizes the opportunity.
For example, when the stock market started tanking on election night I immediately scheduled some investments for first thing in the morning. This was despite my personal feelings about the election. Everyone was freaking out, but I saw a sale going on and decided to invest. The end result was I made money when the market rebounded the next day.
Investing doesn’t need to be scary. If you understand how the market actually works and the psychology of investing, you can get over your fear and start investing. Education also helps. For that, I recommend checking out TradeKing’s educational resources.