Many of life's most worthwhile things are a bit scary at first.
Remember your first day at a new school or learning to drive?
Well investing is no exception.
To help us "conquer" the fear of investing is our weekly guest, Glen Wood, Professor of Business at Broome Community College and President of The Glen Wood Financial Group, Inc.
Glen, you certainly can understand peoples' fears.
Of course I can Candace, the thought of losing money on any investment is not pleasant, but if you give in to that fear, it will definitely hold you back from getting ahead financially. As you just mentioned, the market appears to be on its way back and now would seem to be an excellent time to bite the bullet and either get started investing or committing more to investing. If people if would think of the market downturn as a clearance sale, it's good time to go shopping before prices climb again.
Comparing today's market to a clearance sale is a very good parallel.
It is and it would even be better if we more investors would look at it that way. It seems stocks are the only thing many people don't have an interest in when they are "ON SALE", and they end up eventually buying them at TOP PRICES, just before they again go on sale.
That's a good point Glen, so how do we help them avoid buying at "Peak Prices" which causes them to move away from investing?
Well, to help conquer this "gun-shy" experience, the trick is to invest regularly no matter what the market is doing. The strategy is called "Dollar Cost Averaging" and it eliminates the crystal ball needed to determine when the market will rise or fall.
It takes all the emotion out of investing.
It does, and that's a good thing. Emotion in investing is always a bad thing. And, this strategy is exactly what occurs when we contribute to our 401k plans at work. When we invest a fixed dollar amount into our 401k each pay, the price we pay for our investments is smoothes out the ups and downs of the market.
Dollar Cost Averaging sounds like a good start to lesson our fears, what else will help?
Well Candace, assuming your investments are properly diversified, one of the best things you can do to conquer your fears is to "IGNORE YOUR INVESTMENTS". Not totally, but a number of studies have concluded that the MORE often people "LOOK" at their accounts, the more likely they are to NOT stick with their long term diversified portfolio and in FACT, have LOWER returns than those who review their portfolios every 3-6 months or so.
You're saying they make changes unnecessarily to their portfolio in response to "short-term" changes in the market!
Exactly! Chasing the market winners is a guaranteed loser. There is an old saying in our industry that goes like this: "Last year's winners are usually, this year's losers". Stick to your diversified portfolio!
OK, so far, we can help conquer our fear of investing by "Dollar Cost Averaging" and with a properly diversified and balanced portfolio, stop looking at our accounts every day or every week, look at them every few months or so. What's one more tip to help the investor without a strong stomach?
Candace, for the majority of investors, investing should be kept "Simple". By that I mean, you don't have to invest in creative investments. We all know what just happened to investors who owned creative mortgage vehicles, they lost everything. There have always been and continue to be very good investments that are the vanilla ice creams of the industry. You don't need a thousand flavors to get ahead. And if you don't FULLY understand an investment EVEN IF your ADVISOR does, don't put your money in it. It's your advisor's job to explain all your investments in a way that you DO understand. If you don't, "Just say NO"!
I'm with you Glen, and for any of our viewers who may miss one of our Friday Financial Tips, you can always go to our website at wbng.com and click on Features.