Some fears stay with us, regardless of our age.
When I was a child, I would pester my parents to accompany me at night as I was afraid of the dark.
Now, as an adult, these fears may seem childish.
But the same kind of fear was stirred up as I approached investing for the first time.
Instead of the eager anticipation, there were butterflies in my stomach.
Although I was nearly two decades older, this same fear of the unknown can be paralyzing..
That first step
Fear is a common problem for new investors as they take their first step into the investment world.
Faced with many unknowns, the thought of losing your hard-earned money can be debilitating.
At best, the discomfort may cause you to fumble and make poor decisions; but at worst, it could lead to paralysis as you hold back on investing.
It certainly felt much safer when you did not need to confront the uncertainty.
But even as you avoid one demon, another lurks in the background.
Inflation is the real monster that’s threatening to eat up the value of our money.
And if you don’t invest that money, then the inflation beast will manifest itself and erode your spending power.
Thus, while it’s tough to take that first step, the move to invest is necessary.
Mental preparation
Of course, my fear of the dark as a kid demanded a more permanent solution.
Thankfully, the solution was a lot simpler: a light switch.
As the warm light flicked on, it felt as though a burden was lifted from my shoulders.
The same lessons can be applied to investing, too.
By reading up and preparing yourself, you can remove the fear that prevents you from investing your money.
Arming yourself with the necessary knowledge to invest can enable you to vanquish these fears and deploy your capital into strong businesses.
And that mental preparation is important in conquering any lingering doubts you may have in deploying your capital.
Investing, though, is more nuanced compared to dealing with the absence of light.
The problem of ignorance can be readily solved with the acquisition of knowledge.
But new investors also need to deal with the risks of losing money.
Risks and rewards
The current investment climate may conjure the fear of uncertainty.
The NASDAQ Composite Index recently went into a correction, falling by 10.7% from its peak last November.
Understandably, investors may be feeling lost and worried.
During times of stress, you should use the strength of the underlying business as an anchor.
Share prices may bounce around wildly in the short-term due to sentiment, but business fundamentals will ultimately determine their long-term direction.
Your fear will dissipate once you understand the nature of stock markets and how sentiment can impact share prices in the near term.
By focusing on how the business behind the stock performs, you get a better grip on what to invest in, and what to avoid.
Just as I dispelled my fear of the dark, you can also banish the investment demons that are holding you back from making great investment decisions.
By watching out for your risks and understanding what the rewards are, you are better positioned to become a Smart Investor.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
