The Biggest Obstacle to Investing

In my previous post, I’ve briefly talked about the ways to increase net worth:

1. Earning more money
2. Spending less money (i.e. save more)
3. Use the money that you currently have to invest
4. Simplify what you are doing

This post focuses on #3 – investing. Investing is like growing a plant. It starts out as a seed, then through time, it becomes a small plant, then a big plant, then a small tree, and then a big tree, and finally, a giant sequoia!

 

 

However, I have no intention to make this blog a financial advice column. Instead, I want to address the sensitivity of investing, and how to bring your mind to actually start investing.

Why so sensitive?

First, I did not realize just how touchy this subject is. I’ve talked to people, some of whom are close friends. They all seem to hesitate or reject the idea of investing. There are familiar reasons to that response:

• I’m worried that the stock market is going to crash, like in 2008. All my money will be gone.
• Who knows how long I’m going to live? I better spend what I have so I’ll have no regrets.
• I would much prefer to control how I use my money. There’s risk with investing and I don’t feel comfortable.
• I don’t want my peers to perceive me as a poor person, so I better show what I’m worth now.

The root emotion is fear – fear of poverty, fear of old age, fear of death, fear of criticism. These are some of the six basic fears prescribed by Napoleon Hill, famed author of the 1938 book Think and Grow Rich.

To the surprise of everyone, I also have those fears. I’m far from fearless. While I hate debt, I also hate to take control out of what I’ve saved. I also work for the government. But I also learned something – I can never save enough to combat inflation, and I don’t see why I can’t make the most of what I already had. Instead of thinking I’ll lose it all, I instead force myself to reverse my thinking – I’ll do my best to take it to the moon! It wasn’t easy without spousal support, though.

So the biggest issue with investing is…

Facing our own fears about taking risks. That’s pretty much it.

We can talk all day about the stock market, flipping houses, joint ventures, or startups – yet the basic fear of letting go of your money remains. How can we ever be comfortable dealing with the risk of losing all we have without even spending it?

But if we look at it, it’s almost the same as starting a small business. Opening a small business has risks too, with more than 66% of small businesses fail within the first 10 years.  The only difference, in my opinion, is that we see small business as a necessity to make income, while the stock market is forever cursed with Martha Stewart and movies like Wolf of Wall Street – or crooks.

Overcoming this fear:

This one’s actually quite simple, but it does involve effort. It’s just like any other specialty:

1. Learn the subject. The stock market? Simply head over to Investopedia and learn all about investing through the many stock exchanges. It can be a stock, mutual fund, bond, or a commodity. As for houses, joint ventures, and startups? I can freely admit that I don’t specialize in those fields. See? I don’t know. Google knows, but I don’t. It’s ok to not know and be honest. I know the stock market, and that’s enough for me.
2. Learn the subject’s ins and outs. I grew up in Hong Kong and they’ll have stock market news every 15 minutes. As a kid, this was very annoying yet fascinating at the same time – annoying because it’s not a cartoon, and fascinating because I don’t know what the heck they were talking about. That was the catalyst for me to spend the last five years passionately learning about it, even the obscure stuff that is technically ‘trading’ for the short term, as opposed to ‘investing’ for the long term. I came to the realization that it is just like any other business: there are no magic pills and it takes risks to make money.
3. Make our own decisions after learning those subjects. There are no exceptions. If we listen to others to invest (such as a stock tip, or the house is in a prime spot), our own money will be forever enslaved by others’ opinions instead of our own. Even if the opinion of others is going to be a sure hit, we must make our own conclusions to validate it instead of following it blindly. Making decisions derived from our own acquired knowledge is called ‘due diligence’, or DD for short.
4. Finally, we set a succession plan and a contingency plan. We can set something objective so that when our investment either grows or falters, we’ll have a plan set way before any investment was made. For example, let’s say I have $5000 ready to invest. If it goes up to $6000, I’ll proceed with my success plan, whatever it might be (e.g. put more money to invest, put money into higher risk/reward stocks). Likewise, if it falls to $4000 (20%), then I’ll proceed with my contingency plan, whatever it might be also (e.g. put money into bonds or other lower risk/reward stocks).

At the end of the day…

Investing, like any other activity, takes time to learn. However, once learned, it will be a great method to increase our net worth. Did you know that NBA players as a whole nowadays are smarter with their millions of income? The old days of famous NBA players who went broke – Shawn Kemp, Dennis Rodman, and Latrell Sprewell – were gone. Now, we have the likes of LeBron James, Stephen Curry, and Kevin Durant who are actually investing in their own unique ways. Although we don’t have millions like them, it doesn’t change the fact that we have the capability to make the most use of our savings.