Break the Fear of Losing Money — 5 Truths About Investing that Nobody Told you

Break the Fear of Losing Money — 5 Truths About Investing that Nobody told you

Are you scared you’ll lose your money investing it? Are you overwhelmed by all the information and opinions that people have about investing?

Welcome to reality!

The fact is investing is a huge affair in every person’s life. And, if you’re intimidated by it or just can’t figure out what it is, you’re in the boat with pretty much all humanity!

Of course, you must admit it. Investing when not done right is tremendously risky. Look at the story of Steven Donovan.

As a college student, Steven interned at the Lehman Brothers — one of the largest investment banks in the world.

He studied the financial statements of the bank and found that they were healthy. So, he put all his money into buying Lehman Brothers shares. But little did he realise that his judgement was clouded by the admiration he had for the firm.

During the 2007 financial crisis, the bank declared bankruptcy. Its share prices plummeted to zero. And, poor Steven, in one fell swoop lost all his money!

Stories like this are the first ones that people narrate when they talk about investing.

But wait. Don’t close your mind!

Look at it more intently and objectively.

If you analyse Steven’s story, you’ll see that right from the beginning, Steven missed a fundamental step in investing — diversification. Anyone with even a little knowledge of investing will tell you, “Never put all your eggs in one basket.” Why? Because if you lose one, you still have the rest.

Steven didn’t diversify his assets and lost all his money. That’s why his story is a bad example for you to make the right decision about investing your money.

To win in investing you need to know the basics of the topic. When you understand how it really works, you’ll be able to kick out your fear of losing money and become an expert at it.

So here are 5 truths about investing you need to know so that you can have the right attitude towards investing.

1. Investing is your food for the future

Investing is basically cutting down on today’s spending to have more to spend in the future. Also, investing and saving is not the same. Saving is more for the short-term (less than 5 years). And, by saving your money you can’t make it grow too much.

But investing is focussing on the long-term future. 20 years from now who knows what expenses you’ll have? But whatever it may be, wouldn’t it be wise to be prepared for it?

Investing is a smart thing to do. More than that, it’s a necessary activity that has to be an integral part of your life. No two ways about it.

This is why you need to have the right mindset towards investing. Instead of allowing fear of losing money to inhibit you, make an attitude shift. Make the effort to understand what it is rather than putting it away for another day.

2. Investing is smart buying and selling

Investing is basically buying something that has value, in the expectation that it will increase in value over a period of time and then selling it off at a profit.

The right term for something of value is ‘asset’. So, your asset could be a house, gold, stocks, bonds, foreign currencies, or alternative assets like cryptocurrencies, NFTs and so on.

Investing can also be buying something that puts money in your hands without you having to resell it. Like, say buying a house and renting it out.

As you can see, in today’s world there’s no dearth of assets. With the internet and modern technology, you can buy assets that were inaccessible to earlier generations.

Each asset has its own unique characteristics, its own way of behaving and its own appeal. And this is exactly what makes investing so complicated.

What do you buy? When do you buy? How much do you buy? How do you buy them? Buy them directly or go through an intermediary like a mutual fund or a pension fund? Just too many choices. For most people, the lack of expert knowledge to make the right choice is the primary reason for fear.

So, the way out of your fear? Understanding what these assets are, how they work and then deciding which ones to go in for.

3. Investing is only as risky as you want it to be

Are you a risk taker by nature? There are some who are willing to take a little more risk in life than others.

Why’s this important? Because the more chances of losing your money on an investment, the more you will earn.

Assume, for example, you take all your money and buy shares of a small company that’s newly listed in the stock market. New companies have always behaved like rookie footballers. They promise to become stars of the future. So, if your investment performs well, you’ve made a cash grab.

Yet, the risk of a new company failing is also very high. Suppose it does fail? You lose all your money.

Now compare this to putting your money into a mutual fund. Your fund manager is going to take your money and buy a few shares of a lot of firms. Sometimes, fractions of a single share of different firms. What happens to the risk?

Even if one or a few of the firms close down, shares of other firms may grow and give you a profit. But the downside: you’re not going to hit the jackpot.

So before investing, understand your appetite for risk, study the risk level of the asset you want to buy and only then take the plunge.

Also, remember diversification is the best tool there is to reduce your risk. Invest in such a way that you’ve your spread of small risk to large risk assets.

4. Investing may be your only way to get rich

Investing is better than saving. It makes your money much faster. The surest way to get super rich is to become a celebrity or a business tycoon. But this isn’t a path everyone can take. The next best option a salaried person can take to get rich is to invest their money.

When you put away today’s spending and invest, over a period of time you’ll accumulate a large amount. Plus, if you invest wisely in alternative assets like cryptos and NFTs chances are you’ll make big profits in shorter spans.

5. Investing isn’t gambling or hitting the jackpot

You may have heard stories of how someone made extraordinary profits from their investments. While these stories are true, you should know that this isn’t the norm.

Most of the time, most investment vehicles pay you only modest returns. Hitting the jackpot is a one-off event that’s inordinately advertised. Chasing the bumper prize many people have taken irrational decisions and have lost a great deal of money.

So avoid this extreme. Don’t have hitting the jackpot every time mentality. Investing isn’t a get-rich-quick trick.

The right thing to do: make rational decisions based on facts. Get guidance from experts. Educate yourself on the subject. As you gain more knowhow of the topic, the more confident you’ll become and fear will be out of your life.