There are many barriers to investing. The fear of making mistakes or feeling ill-equipped to make decisions can stand in the path of many investors.
The best tool investors can use to overcome fear is education. It helps us become aware of, or avoid, mistakes, and when we do make them to learn fast and avoid repeating them.
Below is a collection of investing lessons, wrapped around something we’re more than familiar with: life.
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Life lesson #1: Don’t be late
Punctuality is a learned skill. If we’re due somewhere, the biggest mistake that we can make is turning up late, or not showing up at all.
The life lesson of not being late feeds into the core investing principles of inflation, time in the market, and the wonder of compounding.
Broadly speaking, inflation occurs when prices rise across the economy. This decreases the purchasing power of your money. Sitting on cash may seem like the safe option, especially during times of volatility and uncertainty, however its value is continually eroded by inflation assuming any interest payments you receive are lower than the rate of inflation.
So, don’t be late to your own investment party. Instead, aim to get your cash working for you productively via paying off any debt in the first instance and investing.
Staying out of the market can also mean missing out on the wonder of compounding interest – when you earn interest on interest. Think of compounding like a snowball. You pack your capital into your hands (e.g. invest in the market in stocks or ETFs) and get ready to roll it down the hill. Over time, your snowball will grow as it gathers momentum on its journey.
The longer your snowball is rolling and you’re investing for, the greater the effect of compounding.
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Life lesson #2: Knowledge is power
Investors often make the mistake of entering the stock market without any financial education or prior research.
In life, knowledge is power. The same is true in investing.
Don’t take investment advice at face value, and make sure the source is reputable. It’s also important to read all the available information such as factsheets, product disclosure statements (PDSs) and target market determinations (TMDs).
Just like gossip in real life can often be fast-moving and unsubstantiated, taking information from second-hand sources when investing your hard-earned savings is risky. Ensure you know, in-depth, what you’re about to invest your money into. This will help you decide confidently, without the opinion of others, if an investment is right for you and your investment strategy. Ultimately, this will help you hold the course when, and if, you need to.
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Life lesson #3: The tortoise won
Aesop’s famous fable tells the story of a race between a slow-moving tortoise and a speedy hare. We’ve all heard how this ends.
If you’re looking to build wealth over the long term, following the latest investing trends or fads may prove costly and be detrimental to your wealth creation goals. It’s easy to be attracted to investments that rise ahead like the hare when the going is good.
It’s not enough to simply build a solid portfolio: it’s essential to follow a consistent long-term investment process. A slow and steady path can be hard to travel sometimes, especially with the proliferation of ‘meme stocks’ and other fad investments. But stay the course; be the tortoise.
What investment lessons have you learned from life? Why not share them in the comments section below?
This article originally appeared on www.betashares.com.au and has been republished with permission from the author.