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Your mindset about investing makes all the difference in whether or not you’ll actually become a successful investor. That’s why it’s important to reset the mindset around investing, especially if you’ve had any negative thoughts or feelings toward it in the past. Your own thoughts become the roadblock in the way of your success.
Some common beliefs that many of us set for ourselves regarding investing include:
- Investing is too hard. I could never learn how to do it.
- Investing is only for rich people. They have extra money to burn.
- Investing is the same as gambling. And most of time people lose in it.
- Investing is scary and I work too hard for my money to take those types of risks.
Do any of the above statements sound familiar? In the past when you’ve thought about investing, you may have felt anxious, overwhelmed, confused, or stressed out. So, let’s reset it by knowing the truth.
Here’s the truth:
- Yes, investing can be hard to do, but it doesn’t have to be if you have the right plan and strategy in place specific to your unique needs.
- Yes, rich people invest their money. For the most part, this is how they’ve built their wealth. But so can you! With commitment, discipline, and knowledge you can even join the ranks of the wealthy yourself.
- Yes, many consider investing a gamble. And it certainly can be if you don’t know what you’re doing!
- And yes, you work really hard for your money, spending hours commuting to work, working on tasks and projects, attending meetings, dealing with bosses and colleagues. It makes sense that you’d be apprehensive about investing after all the work you’ve had to put in to earn it. But in reality, investing is a way to make the most of that money and enable yourself to work less.
First Step
So, let’s take the first step right here to drop all the assumptions you have about why you can’t invest and why you can’t be good at it if you do. Instead, look at it this way: investing is like learning a different language. Imagine you move to a country where you don’t speak the language, but you need to get directions to a particular destination. You walk up to someone to ask for help and get information in this language that you don’t understand. They’re pointing their finger in various directions, but you have no idea where they are telling you to go. You’d be pretty frustrated, right?
But then imagine that you decide to take matters into your own hands and fully experience all this new country has to offer—including the language. Not only would it make your life so much easier, but you’d also enjoy the experience of living in this new country so much more because you’d actually understand what was going on around you. So, you buy a language dictionary and start taking language classes. After a few weeks or months, you’d be able to piece together phrases, then full sentences, and before you know it you’d be speaking the language fluently without giving it a second thought.
Investing is very similar. It takes time to learn, but with consistency and discipline, you can get the hang of it and really grow your money. The key here is educating yourself, getting informed, and very importantly, conditioning your mindset for success. Whatever doubts you’ve had about investing in the past, let them go. You are taking a new path here—one that is going to equip you with everything you need to be a successful investor.
Overcome Your Fear
- In a notebook or spreadsheet, create two columns. In the first, write down every fear or negative thought you have when it comes to investing. It can be based on your past experiences with investing if you’ve had any, or simply based on what you’ve heard from others or seen in the media. For example, one could be “I’m worried I’ll lose my money in a recession.”
- In the second column, write down all the things you wish you knew or would like to learn about investing that would help you counter each of the fears you’ve written down. Using the same example of a recession, the thing to learn could be “How to respond to a recession while investing.”
- Give yourself time to learn and implement the things as per above list. Keep this list handy & check off the items you learn as you go along and cross out the fears next to them in the process. The more you know, the more confident you’ll be as an investor and the fewer fears you’ll have.
Importance of Investing
In today’s world, there are only two ways to make money.
The first way is the traditional one: working (Active Earning). We all know about this one. You receive income for performing a service and essentially trading your time for money. This method covers things like working for an employer part-time or full-time, working for yourself actively in your business creating a product or service, working with clients on a freelance basis—effectively, anything that requires you to wake up in the morning and get to work.
The second way is by putting your money to work for you (Passive Earning), where your active participation is not constantly required. For instance, this could mean investing passively in real estate and charging rents that not only cover your expenses but net you a profit. It could mean investing in a business venture that’s run and managed by others. Or it could mean investing to earn portfolio income via the stock market, meaning the money you earn from gains and dividends of stocks in your portfolio.
You might be saying to yourself, “Well, I save my money in the bank.” However, while savings accounts can be excellent for the short term (e.g. saving for emergencies, saving to buy a home, saving for a wedding, etc.), the truth is that they are less successful in the long term. Interest rates are typically so low that you’ll never be able to earn more than what you save—especially when you consider inflation, which will eat away at the actual value and purchasing power of your savings.
Stock Market
There are various options for investing but it’s always better to choose a few at an early stage as an investor. Increase your domain knowledge in that particular option and remain focused. For example, if you are choosing stock market investing then you can earn the money in multiple ways. As an investor, you can earn money from:
Appreciation. This is what happens when the invested assets you own increase in value.
Interest payments. This is money you earn from buying investments like bonds, where you lend money to a corporation or to the government and they guarantee interest in return.
Dividends. These are payments that companies issue to their stockholders based on profits earned.
Because there are multiple ways to earn money by investing in the stock market, there is an opportunity for you to diversify your investments and earnings. As you continue doing this over time, your money earns money, and then that money earns money (this is called the power of compounding), so we are talking about potential exponential growth here. This can all multiply far beyond what you are able to earn by exchanging your time for money and putting it in a savings account.
“Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” – Albert Einstein
Why Investing Matters!
Investing matters because regardless of how you do it, it’s the one way in which you can put your money to work for you so you can increase your income without increasing your workload and build the life you truly desire. If you’ve ever thought about retiring early into the lap of luxury, traveling the world with loved ones, owning a beautiful home or even multiple homes, having the freedom to work on your passions, being able to be generous with loved ones and charities, or any other dream that money can empower you to achieve, then investing is how you get there.
If you’re wondering how the truly rich get and stay rich, investing is the answer. That’s right—no magic tricks! (Excerpt from ‘Clever Girl Finance’ by Bola Sokunbi)
