Wealth-building isn’t something restricted to those with a big pile of money; rather, it is something everyone should be doing. And when it comes to building wealth, nothing beats Investments. However, a lot of people are still sceptical about investing, especially when it comes to risky avenues such as Mutual Funds.
What could possibly be the reason behind this averse attitude towards investments? Here’s a one-word answer – Fear! As kids, we usually fear ghosts, darkness and thunderstorms. But, as we reach adulthood, our fears become more complex and often revolve around money matters. And because of these money-related fears, we usually tend to cringe at the thought of investing.
Despite our great earning potential, which could help us build wealth through proper planning, we often end up doubting our ability to take responsibility for our financial future. Because of this crisis in confidence, we tend to overlook the avenues that help us grow our money and prefer to stick to traditional savings accounts to park our nest egg. Of course, you’re still building wealth by doing so, but you are not giving your money a chance to grow.
Let’s discuss some of the common reasons cited by people on why they are hesitant about investing:
Fear of failure
Almost all of us are afraid of failing. It’s human nature. We usually don’t like to step out of our comfort zone because we are scared and lack confidence. The fear of failure is also one of the biggest barriers that holds us back from trying something new – like making an investment, for example. But, let us tell you this, failure is not the end of the world. Rather, it is a learning experience.
When it comes to investing, the fear of failure makes us either procrastinate or completely give up on the idea of investing. Most of us haven’t even realised that investing is not an option. It is a necessity. Let’s take an example of something that we do every day and comes with a risk of failure or loss – our work. None of us are perfect. We often make mistakes – some that are costly and others, not so much. But, we don’t leave our jobs and brood over such mistakes and mishaps, do we? Although, a fellow colleague losing his/her job, or news about mass layoffs may be sad to hear about, we don’t quit our jobs in fear. Does the news of someone losing their job or the rising number of car accidents stop us from getting a job or driving? No. Then why do we steer clear of investing because someone else has failed at it? Food for thought.
Here’s a simple tip to get rid of your fear of failure – pick your investments wisely. There is a big list of different investment options – Mutual Funds, Fixed Deposits, Bonds, stocks, real estate, commodities, futures, debentures, gold, Savings Accounts, etc. Some of these options like Savings Account and Fixed Deposits are pretty safe with minimum risks attached. But then that’s what you wanted – a safe investment. Unfortunately, the high-yielding investments come with a much higher exposure to risks.
Additional Reading: Silver – A Shining Investment?
Fear of being cheated
None of us want to get taken advantage of. This is also a part of human nature. For someone who is new to investing, the fear of being cheated is one of the biggest barriers. Yes, there are individuals and companies that target new, inexperienced investors. But, is it a strong enough reason to stay away from investing? No, we don’t think so.
Before you start thinking that we’re trying to push you over the edge, let us tell you why we’re saying that it is not wise to stay away from investing even though you could get cheated. As mentioned earlier, the fear of being cheated arises because of our limited knowledge about investments. However, it’s possible to boost your knowledge. You get the drift here, don’t you?
It is pretty easy to minimise the risks attached to investments if you arm yourself with the fundamentals of investing. It may not be as easy as washing dishes, but it isn’t rocket science either. There are a lot of people out there who have done it and succeeded. Maybe not at the first attempt, but they have. If they could do it, then why can’t you? Think about it.
Thanks to the internet, it has become extremely easy to learn about anything and everything. So, we would advise you to get started on the basics of investments. The more you learn about investing, the more you will understand the traps and pitfalls, and the more confident you will be about investing without being cheated by scammers.
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Fear of numbers
Ah, the dreaded math anxiety! We understand that crunching numbers is not everyone’s cup of tea. But, we also know that it isn’t hard to learn. With a little practice, you can get rid of your fear of numbers.
Let’s take the example of John. He was super-scared of numbers right from his school days. Because was unable to understand numbers, he couldn’t bring himself to invest. One day, his best friend Suzy introduced him to her financial advisor. And that was his life-changing moment! You must be wondering how and why, right?
His new advisor was like a blessing from heaven. She took him through the problem-solving part of investments, explaining every detail in simple terms. And with her help, John finally got rid of his fear of numbers. He actually became quite a pro at it. She helped him build a strong portfolio and today John is happily retired, living off the income from his investments. And he’s just 40!
In a nutshell, we are suggesting that you take the help of a good financial advisor if you can’t handle numbers. But, don’t just leave all the calculations to your advisor; instead, be like John, and learn how to do it yourself as well.
Additional Reading: Now Choose Your Financial Advisor Without Any Hassles
Fear of losing money
We agree with the old saying – ‘money doesn’t grow on trees’. It doesn’t come easily. When it comes to our hard-earned money, it always boils down to being better safe than sorry. And that’s why we totally understand when you prefer to hold on to it tightly instead of investing it.
But, let’s take a different angle while analysing your fear of losing money by investing. You would have heard of inflation, right? It’s pretty much an ongoing phenomenon. For example, a movie ticket used to cost around 30 to 40 rupees a few years ago. Today, however, you have to pay 150 to 200 rupees for the same. Likewise, prices of almost everything have gone up and will keep going up as the years go by. Inflation has a direct effect on your investments as well. For safety’s sake, let’s say you have parked your money in a savings account. In a few years, despite the interest it would have accrued, the amount wouldn’t have beaten the inflation rate. In simple terms, the value or purchasing power of your saved-up money has decreased lying in a savings account. Also, by not investing, you are technically losing money.
Let us also make it clear to you that there is no sure-shot formula to help you choose the best and profit-guaranteed investments. As humans, we tend to make blunders and mistakes. You are bound to make bad investment decisions and lose some money. But, look at the bigger picture – these bad decisions will enhance your understanding of investments. This, in turn, will help you make better-informed decisions in the long run. And as you make investing a habit, you’ll soon be gaining more than you lose.
Here are two simple tips to help you overcome your fear of losing money while investing:
- Don’t give up. Keep going. The odds will turn in your favour over the long run.
- Don’t let short-term results get the better of you. The big picture is what matters. Be patient and wait for the end result.
Why investing is important?
Saving money is a thing of the past. Today, investing money is the way to go. If you thought savings and investing are the same, then you should rethink that. Savings refer to a part of your income that you put aside – under your mattress, in a piggy bank or in that secret locker in your cupboard – on a regular basis. This money just vegetates wherever you put it and is ideal to meet your short-term goals. On the other hand, investments allow your money to grow, gives you returns and are ideal for meeting all your larger financial goals.
Let us give you a few good reasons to get you investing.
Prepare for the rainy days
Have you ever thought about how you would provide for your family if you were suddenly hit by unexpected circumstances such as the loss of your job or a medical emergency? These situations can come out of the blue and come completely unannounced. Don’t you think it is wise to prepare yourself for such situations beforehand?
Your investments will be your saviour if such situations were to arise. Investments are like a financial cushion for those rainy days. When it comes to an emergency fund, you should aim to put aside at least for six months’ worth of expenses for your family.
Where to invest? We can suggest two options – a Fixed Deposit and liquid Mutual Fund. These investment avenues are ideal for gathering funds for emergencies. Plus, they give decent returns too.
Additional Reading: An Emergency Fund To Rescue Your Investments
Meet your financial goals
Ever dreamed of getting a home of your own or a new car? We all have. Why go through the hassle of having to borrow funds to make that downpayment when all it takes is investing in the right avenues? Choose the right investment plans and fulfil your dreams with ease.
Some of the most common financial goals include buying a house, buying a new car, children’s education and marriage, retirement, family vacations, etc. Set a timeframe for each of your goals and choose your investment plan accordingly.
Where to invest? For goals with a timeframe of five to seven years, you can invest in balanced funds or equity diversified Mutual Funds. Also, you could try traditional investment plans such as endowment plans, provided they mature within the timeframe of your goals. You could also opt for money back plans, which will fork out funds at fixed intervals. Money back plans are an ideal investment plan for your kid’s education needs. For your long-term goals (beyond seven to eight years), an equity-oriented Mutual Fund is perfect. An equity-oriented Mutual Fund provides higher returns over time, though they are riskier than the other options.
Additional Reading: ULIP – Should You Consider Investing Or Not?
Who doesn’t want to have a big pile of money? But, how are you going to build all that wealth if you are averse to investing? Trust us when we say that only investments can help to grow your money and create wealth. Also, you need to invest for the long-term.
Conservative investment options aren’t going to get you big results either. If you are aiming to build a sizable portfolio, then you need to take a little risk. Taking risks in investment terms means that you will need to invest in equities. Besides, equity exposure is important if you want to beat inflation in the long run. The younger you are, the more we recommend you allocate the majority of your portfolio to equities. This is because you have time on your side as compared to older investors.
If you wish to retire wealthy, remember that you need to chart out a solid investment plan and diligently execute it. It is important to stay on course and in time you will find yourself building wealth.
Where to invest? Equity-oriented Mutual Funds and equities are the best options to build your kitty. Aim to invest for 10 years or beyond. If you’re not confident enough to play with equities, you could always get the help of a certified financial advisor. He/she will provide much-needed guidance while helping you choose the best plans to invest in.
Additional Reading: ULIPS Vs Mutual Funds: What’s The Best Option For You?
Investments fight inflation
Only investments can protect your capital from inflation’s sharp claws. When it comes to investments, always keep in mind that your real returns are equal to your investment returns minus the inflation rate. Parking your money in high-return investments help to beat the ever-fluctuating inflation rates.
Where to invest? Ideally, equity-oriented Mutual Funds are the best options. Judging from past performances, these equity-linked investment options have given returns higher than the inflation rate. But, you could also go in for a balanced ULIP.
You are financially secure only when you have a large reserve of cash at your disposal. So, are you financially secure yet? If your answer is a big NO, then it’s time you start investing prudently. Investments can help you build a large corpus, thereby securing your financial future. You could even retire early, take a world tour and still have enough cash for all your other needs and wants. Sounds cool, right?
Where to invest? Any equity-based investment product is the answer. Mutual Funds and equity-oriented ULIPs are our choice. Invest in any of these regularly and you’ll gradually build a sizeable corpus. And you wouldn’t have to worry about your financial future anymore. Time to start investing, don’t you think?
Additional Reading: Retirement Planning For Everyone
By now, we’re guessing that you’ve already prepared yourself to start investing. Here are few things to keep in mind before you start:
Do your homework
This is a very important step before you invest in any avenue. You need to be well aware of where you are putting your money. Unless you do your homework, your investments may end in disaster. Now, you wouldn’t want that, would you? You could ask your friends, colleagues and family members for their opinion or do your own research and check out reviews online. Better still, you could get in touch with a certified financial planner and have him/her help you plan your investments based on your risk profile.
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Develop a long-term mindset
This is very important because short-term investments tend to underperform. You need to build a tolerance towards any underperformance of your investments in order to create value over the long term.
Long-term investments give you enough time to beat market fluctuations. In addition, developing a long-term mindset allows you to keep your emotions in check, so you won’t sell your assets out of fear when there is volatility in the market.
What’s the main aim of investing? It is to build a sizeable corpus, right? Do you think you can build such a huge cash reserve by investing for just five to seven years? So, if you’re aiming high, then you have to think long-term to reach there.
As mentioned before, don’t sweat the small stuff. By small stuff, we are referring to unsteady short-term results. Keep your focus on the future. As far as equities are concerned, it’s what happens in the future that matters and not past or current results. Your decisions should be based on future potential rather than on past performance. Think only about the big picture!
Additional Reading: Why Investing In Equities Is A Better Option
Be loyal to your plan
It is important for you, as an investor, to show some loyalty to your investments and stick to the plan. Maybe your investments seem like a sinking ship today and you really want to abandon it. But, if you do so because of market volatility, you are setting yourself up for a loss. At the same time, you are going to miss out on the upturn.
Trust us when we say that even the best funds and fund managers have underperformed at a certain period. Even the best are not prone to underperformance – such is the investment market. So, don’t give up. Stick to your plan and wait for the end result.
Instead of letting fear consume you, why not let it drive you? Don’t hold yourself back from investing. Remember, if you want to enjoy financial freedom in the future you need to start investing today. So, overcome your fears and take that small step towards investing. We are sure you’ll do great. Good luck!