BreakingModern — Investing in the stock market is not intellectually difficult, but it can definitely be mentally challenging. Even the most-bullish of markets will have their down days. Those are the days when your holdings in a particular stock could lose thousands of dollars of value for seemingly no reason at all. Riding the ups and downs of the stock market without experiencing panic or irrational exuberance takes a disciplined, non-emotional mental approach.
I touched on this idea earlier, but I think we need to have a deeper discussion on it now. If you have taken my advice and used your disposable income to invest in the stock market, money earmarked for a vacation for example, then you should consider that money spent. Sure, that money is actually in an investment account, but your mental approach should be that it is gone and never to be seen again.
When it comes to your normal living expenses, that invested money is no longer available because you spent it on a “vacation.” Adopting this mental approach will help you ride out the ups and downs of the market. And, if the worst happens and you lose all of your investment, from a net worth stand point, you are in the same position as you would be if you had really spent it on a vacation.
This is why you should never invest money that you need for paying the bills in the stock market — we only invest our disposable income.
Having this approach can help you make investment decisions based on your understanding of the facts and not on your emotional well-being. The thought being, you don’t need the money, so you are not attached to it emotionally. Of course, in the future this attitude will change and you’ll adjust your investment strategy accordingly, but until then we take emotion out of the decision-making process.
Brokers, Bankers and Charlatans
One of the persistent myths in the financial industry is the idea that individual investors cannot make decisions on their own because the market is too complicated and requires professional, sophisticated knowledge. This is simply not true. The Internet, a tool used by the younger generation since they could tap a keyboard, levels the playing field for everyone. Public information about companies and stocks cannot hide from a search engine.
Besides, some reports show that the aging brokerage industry has abandoned the young individual investor because the fees and commissions are too low. I think there is some truth to that idea, but I think the even-more-powerful reason is that brokers realize young individual investors don’t really want or need financial advisors anymore.
By tapping into the Internet and social media, young investors actually have superior knowledge and insight into emerging trends. In other words, a young person is much more likely to see the investment potential of a Twitter or Facebook or Google or Alibaba or GoPro, and see it earlier, than a stodgy financial advisor sitting in a corner office on Wall Street.
Accessing this information is important because you are actively managing your investments. Managing investments means doing the required work on a daily, weekly, monthly and yearly basis. You have to keep up with news about companies you invest in. You have to know why your investments are going up or going down.
Not All Alone
While there is no doubt in my mind that individual investors can be smarter than so-called experts about many potential investments, that does not mean that individual investors have to do it all alone. Besides the Internet and social media, there are free websites full of information. Google Finance, Yahoo Finance, Motley Fool and Seeking Alpha are all web tools to help you in your quest for financial independence.
I also recommend that individual investors establish their investment accounts with one of the discount brokers, like E-Trade, TD Ameritrade or Scottrade. These brokers have websites where you can manage your investments, research stocks, set up news alerts and get professional advice if and when you need it. You pay a small fee, generally under $10, for each investment transaction, but that is all you have to pay. The research and everything else is no extra charge.
As we wrap up this series of articles on financial independence, I wanted to emphasize one point:
Investing in the stock market can change your life by giving you financial independence like no other activity can. The United States stock market is the greatest wealth engine in the world, and you owe it to yourself to take advantage of it. Learn how the stock market works, be smarter than the next guy and give yourself the power and security to make your life the way you want it.
Here are links to the other published articles in this series:
- New Year’s Resolution: Financial Independence [Part 1]
- New Year’s Resolution: Glossary of Investing Terms [Part 2]
- New Year’s Resolution: Investing without Stress [Part 3]
- New Year’s Resolution: Investment Strategy [Part 4]
- New Year’s Resolution: Financial Independence [Part 5]
- New Year’s Resolution: Financial Independence [Part 6]
- New Year’s Resolution: Diversification [Part 7]
First/Featured image: © anyaberkut / Dollar Photo Club
Second image: © alswart / Dollar Photo Club