When a sector blows up, such as the tech industry, real estate, or Bitcoin, it seems like there’s always a handful of lucky people who invested early and became millionaires overnight. They’re splayed across the internet and now live out their days carefree on a sailboat in the Caribbean.
These stories tend to make the rest of us feel inadequate for not having the foresight to have invested in those companies early and hitting it rich. We kick ourselves for not knowing about it. We look at our pitiful bank accounts and lament, “If only I had bought into Apple, Amazon, Netflix, X, Y, or Z. If only I was born 40 years earlier in 1950 and had invested in McDonalds!”
Months go by as we continue not to invest in anything because we are too lazy to do some research and too fearful to “gamble” our money. The sensational media craze begins again with another company. FOMO (Fear of Missing Out) strikes again! We missed the boat!
It is completely possible to make money over the long term through steady, regular investments. If you are a new investor, I would not recommend dumping thousands of dollars into a single company’s stock right off the bat. And I think that’s what many people envision when they think of investing. The thing that the “Made it Rich” stories don’t explain is that buying a lot of stock in a new and upcoming company is extremely risky. Granted, that’s why the returns can also be incredibly high, but you could also lose your shirt.
The thing is, the longer you have nothing invested, the more time you are wasting. The longer we avoid opening our retirement account or adjusting our current one, the more money and security we are stealing from our future selves. The longer we let fear keep us out of the stock market, the more opportunities we see blow by and the further away we drift from achieving our financial goals.
Time in the market is your ally. It is never too late to start investing.
The wisest way to begin investing is by Dollar Cost Averaging. To do this, each month or week you automatically invest a fixed amount of money, say $50 to start. By investing regularly and consistently, you are spreading your risk and costs over time while also building your portfolio.
Stock and fund values fluctuate in the market. Regularly investing will protect you from overpaying because it will average the costs over time. For example, one day a stock might be a great deal and worth $10. The next day, it might sky rocket to $20. If you chose to dump a lump sum into buying up stocks on that second day, you will be paying a higher price, and when its value settles down again you will have lost money as it’s now worth less again. By automatically investing on a regular schedule, some days the stock will be purchased when its $10, some days it might be higher, but it will basically average out, without you frantically trying to time and react to the market (a task that most people can’t do, let alone a novice investor).
Researching the basic principles of investing and the different types of funds, stocks, and bonds available to you is the first step. This should happen months or years before you’re ready to actually invest.
I’m not talking about researching individual company’s stocks and trying to crunch their books yourself. Yuck. That can come when you’re a more experienced investor. I just mean learning what the hell an Exchange Trade Fund or Mutual fund means. Learning the difference between small-cap, large-cap, bonds, and U.S. versus global stock. Use a risk tolerance calculator online to determine the ratios you need of each bucket in your portfolio to achieve your goals.
As with any other new hobby or undertaking, the more you understand, the more approachable and interesting it becomes. Some fear and doubt is inevitably tied to investing, but knowledge will help you diminish it enough to enter the market. Don’t let years of fears stand between you and investing for your future.
The great news?
Investing is completely self-teachable. I know because I’ve done it and am still learning.
And there is a plethora of knowledge out there. I started with listening to Optimal Finance Daily, which has short podcasts about all things financial and grabbing some books from the library. Younger generations are less invested in the stock market than older generations. Part of this is because we have less capital to work with, but a huge part of this is just fear from a lack of knowledge. Some people are lucky enough to have parents or family members who taught them about investing, but I would wager that most of us don’t. Too bad, so sad. Learn about it yourself and then help others. We arguably have many more resources such as books, blogs, podcasts, YouTube, webcasts, discussion forums, etc. at our disposal than earlier generations did, so make use of them.
*Disclaimer: These are my personal opinions and experiences based on contemporary financial wisdom. I am not a financial adviser, broker, or general fancy money professional of any sort*