Investing can be dangerous yet profitable endeavour. Many people have been burned by investments and don't want to do it again. This is the main reason why people are afraid to invest in anything. They might say things like, "I don't have enough money" or "I don't know where to put my money." But the number one thing people worry about is always losing money. If a new investor is sure he won't lose money, he must have used every tool (like a loan) at his disposal to buy as many investment opportunities as possible.
Investing in this country can mean a lot of different things, from buying gold coins to buying a house. But more than half of all US households invest in common stock, making it the most popular way to put money to work. You can get over your fear of investing in common stock in a number of ways.
Learn something.
When you know more about something, you can be sure of what will happen. When you know how to figure out the fair value of a common stock, you can figure out how much money you can expect to make from it. Keep in mind that the less you don't know, the less risk you take. You will also know more about the risk that your investment could go down in value. If a common stock is making money, has positive net cash of $ 3 per share, and is currently trading at $ 5 per share, you know that it won't trade for a long time below $ 3 per share. Here, the most you could lose is 40 percent of what you started with.
Start out small.
When you first start investing, there are a lot of things you don't know. Less education means less knowledge, which means more unknowns and more risk. How big should your first step be? You should bet as much money as you can afford to lose. If you're still not sure, how about $1 per day? If you invest a dollar a day for fifty years and get a return of 10.5%, you will have $500,000. Even if you have $500,000 right now, it's best to start with a small amount if you're new to investing.
Pay your own bills first. This doesn't mean that investors spend their money on things that they don't need. Pay Yourself First means that you look for investments that will pay you first. What can give you the most money back first? One thing that comes to mind is buying a common stock with steady or growing dividends over time. Selling covered call options is another way to pay yourself first. For new investors, though, I think we should wait to talk about this until you know a lot more about how to invest in common stock.
Learn from what you did wrong. Once you start investing, you will always worry that you will lose money. The best way to learn is by making mistakes yourself. But to help you learn more quickly, we've put together a list of 15 common mistakes that new investors often make.
If you read this column, will you no longer be afraid? No, that's not true. Fear is always there because no one knows what will happen. To invest well, you have to try to guess what will happen in the future, which is hard to do. Even putting money in a money-market account is a risky move. It involves some small risk. The risk is that inflation could rise faster than the interest rate. There is also doubt about where interest rates are going. In the 1980s, the interest rate was in the high single digits. Check out where it is now.
We live in a world full of unknowns. Instead of hiding behind the wall, we should accept it and learn more about it to make things less uncertain. If we do this, our investment returns will be higher than the rate of inflation.
