BreakingModern — In our search for financial independence, there is one factor holding us back more than any other and it is fear. Novice investors fear they don’t know enough about investing in the stock market, and they fear they will lose money because they might make a mistake. The additional stress caused by these fears is more than enough to keep them out of the market and, as a result, rob them of their financial independence.
State of Mind
Let’s get one thing straight before we go any further: If you invest money in the stock market, you will sometimes lose money.
This is a fact that cannot be disputed. But you should not fear it, instead you should embrace it. Picking winners and losers is what the investing game is all about. The trick, the strategy that will relieve your stress, is picking more winners than losers.
Have you ever bet on a horse race? During the course of a day of racing at Churchill Downs, for example, you will have on average 10 races to bet on. Successful handicappers adopt a strategy of winning more races than they lose. They know they will not make a winning bet in every race. But not picking the right horse in a race is part of the game, part of the fun. It makes picking the right horse in a later race that much more satisfying.
The same approach should be applied to investing in the stock market. Picking and investing in a stock is like picking a horse in a race. You are betting your stock is a winner, but other people are betting their stock is a winner and your stock is the loser. Someone in this equation is going to be wrong. The key is to be right more often than you are wrong.
Let it All Go
This next strategy for relieving the stress many feel when investing in the stock market may be a little counterintuitive and perhaps controversial. However, it is a technique I still rely on today:
Consider every dollar you deposit into your stock market investment account as lost money.
That’s right. If you operate on the belief that every dollar you put into your investment account will never be seen again then you eliminate all of the stress associated with getting it back. The important flip side of this approach is that you never invest the rent money, nor the mortgage payment, nor the grocery budget, nor money for your IRA or 401(k), nor any money that you need to live your normal life. You only invest money from your disposable income and then you consider it disposed of and lost forever.
In my accountant and financial advisor role, I have sometimes advised clients to skip their annual $5,000 vacation for one year and instead use that luxury expense as seed money for their investment account. They would still be “spending” the $5,000 dollars, only there would be no beach involved and there would be the potential for a windfall in the future. Of course, I am often ignored when I make this suggestion.
The clients who ignore my suggestion are also often the same ones who come to me years later looking for advice on how to raise money for a down payment on a new house or some other major expense. I always bite my tongue and offer them suggestions for saving a few bucks here and there, even though I know they would have the money they are looking for and much more if they had just passed on one trip to the beach years ago.
The skip-the-vacation scenario exemplifies another strategy for reducing investment stress:
Be smarter than other people.
I know we live in a world where immediate results are the desired norm, but you have to be smarter than that — you have to see your financial independent future. You have to plan for it and then put that plan into action to make it happen.
Sure, that takes effort, but the end result is going to make your life in the future, at least from the financial perspective, nearly stress free. Think about how smart that is — less stress now and less stress in the future is all within your grasp. All you have to do is make the effort toward achieving it.
Is there a financial concept or general question you have? Drop me a comment and I will do my best to answer it. Look for my continuing series on taking charge of your financial future:
For BMod, I’m Mark W. Kaelin.
First/Featured image: © Shirley / Dollar Photo Club
Second image: © Mike Liu / Dollar Photo Club
Header image: © Adrian_ilie825 / Dollar Photo Club