Your 6 biggest fears about investing

 

When I first moved to our village, it had 5 pubs. Now, thirteen years later, two of these pubs are luxury homes, one is a building site, and two are still serving pints. Plenty of locals like to moan about this decay of our village life. But when you ask them if they actually used to visit these pubs, most of them rarely actually went through the doors.

It’s that difference between talking the talk, and walking the walk.

Of course, I’m not saying we should all be down the pub every night – there are lots of reasons not to go to the pub, not least that it’s raining and there are some beers in the fridge. But I know that most of us are good about talking up the things we could be doing … rather than actually spurring ourselves into action.

What stops us from getting into the markets?

Having more money … working less … becoming financially independent … security for the future … dodging the inflation bullet …

These are all big plusses – most people want these things.

Yet very few people take action to make them happen. What gets in the way?

• Fear of failure
• Lack of funds
• Lack of time
• High costs
• Lack of knowledge
• Thinking it just isn’t for people like me

Usually, it’s a combination of these factors. But any one of them can be enough to stop us in our tracks.

These fears aren’t ‘wrong’ or unjustified – they are perfectly valid concerns that should be addressed before you’re able to move forward …

Fear of failure

Fear of failure is often talked about like it’s a weakness, but we should all come to the markets with a healthy dose of skepticism. Is this a scam? Am I being a sucker? What are the risks? What’s the worst-case scenario?

If we don’t look at our risks head-on, they will gnaw away in the back of our minds, undermining our confidence, and ultimate jumping out to bite us.

However, if we address risk, we can mitigate it and balance against it. The problem comes when we don’t fully understand the risks we’re taking. In trading, it’s so important to approach each position we take in the knowledge that it could lose – and to know how much that loss could be.

Even the most successful market positions could very easily have been failures if the wind had been blowing the other way – if we embrace this flip-side of reward, we can conquer the fear of failure.

Lack of funds

How much money do you really need to start investing in the markets? £1,000? £5,000? £10,000?

These are the kinds of figures banded about. And for many types of trading, that is the reality.

But it’s very possible to start out with considerably smaller sums.

Yes, that means that your profits at the beginning will look pretty measly and you may question whether it’s worth the effort. But it’s much smarter to learn with a small fund and build gradually.

Compounding will naturally grow your fund, but you can seriously accelerate that process by adding regular small amounts. The chart below is a favourite of mine – it shows the growth of a £1,000 account over 20 years, with a steady 20% pa return, compared to the same strategy, but adding £600 extra each year (that’s only £50 per month) to your investment account …

Traders of small funds have a much better understanding of protecting capital – they can’t afford to lose it. So small beginnings should be no reason not to get involved. If you really have no spare cash at the moment, then use this time to demo trade and get really good at it!

Lack of time

If you have the money … very often you just don’t have the spare time.

When you start looking at all the information out there, it can feel like trading is going to take hours out of every day – but it really doesn’t have to be that way. And, ironically, it’s often those who spend less time looking at charts who are the most successful.

If you can only spare a few minutes, once a day, once a week, or even once a month – that’s perfectly possible. Trading daily or weekly charts means you can invest at a much slower pace, without having to compromise on profitability.

Longer term trading methods usually require larger funds – so if you’re cash strapped AND time-poor, it’s a slight balancing act to find the right trading method. But it’s certainly possible.

On top of your trading time, use a simple spreadsheet to track progress, and set aside some time at regular intervals to monitor results so you know what’s working.

High costs

It’s never been cheaper and easier to trade the markets. Online brokers have revolutionized the trading world, making it accessible to everyone.

But there are still costs – whether it’s buying an out-of-the-box strategy or paying for mentoring.

Neither of these things are requirements for success – there’s plenty of free information out there. And the Traders Bulletin site is a solid place to start. But if you’re going it alone, be prepared that it’ll take more time, and you’ll be learning from your own mistakes (rather than someone elses!)

Lack of knowledge

As a much smarter man than me put it: “The only true wisdom is knowing you know nothing.” And I think that really gets to the heart of how traders should approach the markets. The more we think we “know” about how the market will behave – the more danger we’re in of making stupid mistakes.

The best we can hope for in the markets is to recognise behaviour patterns and gain a statistical edge by using those patterns.

In the spread-bet school on this site, I’ve tried to really hone in on what’s important, filtering out the noise and fluff – it’s a good place to start.

Thinking it’s for other people

Most people want the benefits that trading can bring, get very few will stick their necks out place those first trades. Because most people just don’t think it’s an option for them – surely it’s too risky, needs too much knowledge, too much money …

The reality is that anyone can do this, and make a success of it.

The factors that bring success in the market are not: having an appetite for risk, knowing lots about it, having a big trading pot. In fact, these things probably cause more problems than they solve!

Success comes from an honest appraisal of risk, realistic goals, and a preparedness for failures along the way.

 

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