Many millennials appear hesitant when it comes to investing. They often cite insufficient funds as the main reason, which is simply a misconception. Investment does not require large sums of money, and with a well-structured budget strategy, most people can afford to invest.
Fear is another major barrier to start investing. Misconceptions, like equating investing to gambling, induce fear and can discourage potential investors. Other common fears are losing their entire investment in the stock market, acknowledging the inherent risk involved in the process. However, by delaying the decision to invest, you are potentially harming your financial future, as investments are proven ways to grow wealth and make your money work for you.
Overcoming this fear and refraining from wasting time that otherwise could have been spent on saving, four steps can be recommended:
1. Understand how the market operates: Do not fear the unknown. Invest time to research and educate yourself about the functioning of the market. Historical data of over 100 years reveals that although the market experiences fluctuations, it always recovers over time. So, do not panic during the low phases and sell; this would lead to a loss instead of potential gain.
2. Don’t risk everything in one venture: It is highly recommended not to place all assets in one investment. The safest approach to investing is to diversify your portfolio intelligently. Different retirement accounts, such as 401(k)s and Roth IRAs, are options to consider. Including a mix of stocks and bonds in your investment funds can help balance risk.
3. Consider the risks of not investing: Instead of agonizing over potential losses from investing, consider the risks and consequences of not investing and neglecting the establishment of a safety net for your future. Investment is the cornerstone of accumulating long-term wealth as it allows your money to work for you with the aid of compound interest.
4. Begin small and limit potential losses: To overcome the fear of investing, start with smaller, lower-risk investments. You can begin investing with as little as $5 with platforms like Stockpile. Although this won’t enable your retirement, it will make you more comfortable, allowing you to observe firsthand how compound interest functions.
These fear-dispelling steps are based on personal experience. When I began investing, I could only afford to set aside $100 per month. But I viewed this as my contribution towards achieving financial independence in the future. It felt rewarding seeing my portfolio grow over time, with no decrease in its value despite recent market fluctuations.
Returns on average between 4% – 12% are possible through investing. This stands in stark contrast to average saving accounts, making overcoming your fears and beginning your investment journey worthwhile.
