When I bought my first investment in my lunch hour at work I was terrified! I had never done anything like this before and this was real, my money, a lot of money, that I had been saving for two years.
This article will look at why investing feels so scary. We will talk about how risky it is, and if you could lose everything as well as what you risk if you do not invest! And, finally how to do it simply and sustainably so you can sleep at night.
WHY IS INVESTING SO SCARY?
The word risk is thrown about all the time in the world of investing, and it is very off-putting. Risk is the possibility of something bad happening at some time in the future.
Risk in investing refers to the possibility that you might lose some or all of the money you’ve invested.
But could you actually lose all your money if you invest?
Technically, yes but this is very rare. Even if you put all your money in one share (a highly risky investing strategy!) and the company did really badly you’ll usually retain some residual value.
What you do have to tolerate is that the value of your investments will go down and up in value. This is to be expected. It is part of being an investor. While in the short-term things go up and down, generally the overall value of the stock market increases.
ARE WOMEN MORE RISK AVERSE THAN MEN?
There has been a lot written about women being risk averse. This can present a problem when it some to investing. I prefer the term risk aware. Let’s explore this.
WOMEN AS RISK AWARE
Generally, women earn less than men. They also often end up taking more career breaks to care for family.
This means many women have less savings and a smaller pension! So, for many women there is more at stake when they invest simply because they have less money to play with in the first place.
Coupled with a general lack of financial education and knowledge, it is understandable that women want to understand investing before they begin.
This presents its own challenges. The financial sector does not traditionally represent or include women.
- Women are under-represented in the workforce.
- Images and advertising show women only saving pennies or splurging on shoes.
- Investment products are designed for men and the language used reflects that.
- Men who invest generally tend to focus more on returns and how to chase them, while women have a more holistic view of investing.
On the other hand, women’s risk awareness means that they invest in a wider range of things. They are also less likely to panic and sell their investments when the stock market is falling.
This means they have better returns in the long term. Women are actually better investors!
WHAT DO YOU RISK BY NOT INVESTING?
While there are risks in investing there are also big risks in not investing.
Inflation, a rise in the cost of goods and services means that money in a low-interest savings account or under your mattress, is losing value. You can buy less with it than you could be before.
When you invest you are buying an asset for the long term with the intention that it increases in capital value and pays you dividend. By reinvesting the money you make and with the power of compounding your money grows and works for you.
By not investing, you miss out on what Einstein called ‘The Eighth Wonder of the World’. Over the long term, compounding can significantly increase your wealth as the money you make is making more money.
Investing is a means of building wealth and achieving your financial goals. Without investing, it can be challenging to accumulate enough funds for major life milestones, such as buying a house, funding education, or retiring comfortably. Your financial growth may be slower, and it may be harder to achieve long-term financial security.
SIMPLE STEPS TO TAKE TO MANAGE RISK WHEN INVESTING:
# 1 Diversification
The best way to ensure that you don’t experience massive losses in stocks is to be well-diversified. Spreading your investments across different assets and sectors can help reduce risk. If one investment performs poorly, others may compensate for the loss.
#2 Manage your feelings
The best investors do not make decisions on feelings. Not easy! Behavioural economics shows that we suffer more when our investments go down than we feel joy and happiness when they are moving in the upward direction. I know this from experience!
If you are aware and expect this then you do not react to these feelings and do anything with your investments – like sell them in a panic. You can even have a sense of humour about it.
#3 Don’t invest money you cannot afford to lose
Before you invest it is smart to have £1000 in a cash savings account for expected unexpected events and between 3-9 months of your basic survival income, in case you lose your job, have an unexpected illness etc. This money provides you with security and protection so that you can then invest and watch things go up and down without feeling like your survival is at stake.
Investing is for the long term, at least 10 years. With the combination of the simple principles above your investments work away for you in the background, leaving you to get on with your life. There is then no need to feel anxious, worried or scared with day-to-day fluctuations in the stock market.
KEEP CALM AND CARRY ON INVESTING
What you need to remember is that while investing always carries some risk, not investing in your financial future is just as risky. While the stock market goes up and down the simple rule is not to fiddle, tweak, sell up in a panic or take money out. Investing is for the long term, emotions are normal and are best ignored.
If you enjoyed this and want to learn more, you might enjoy these articles from the archive
So You Want To Start Investing? Here’s How To Do It Simply And Sustainably
Female Investing: The Gender Gap And How To Bridge It
Or to discuss your goals in more detail then get in touch with me today for a free no obligation conversation about simple sustainable investing.