It’s natural to be fearful of things you don’t understand, and fear is the single biggest roadblock that will stop you from investing as much as you could or should.
The fear of making a mistake that will cost you a bunch of money is very real. You want to invest but are a little unsure of certain elements and their impact. This uncertainty grows into concern, which then builds into fear, and before you know it you’re paralysed.
Fear is natural, and healthy - it will stop you from doing something dumb that will cost you a bunch of money. But if you let it, fear can also stop you from playing a bigger game and getting bigger results. The safe option is the known option, the one that comes with the lowest level of risk. But it’s also the option that will make you the least amount of money.
Consider this example.
If you were starting with $0 in your investment account today, at age 20 if you were to save and invest $10.94 daily, then reinvest all income (share dividends) over time, by the time you reach age 60 you’d have built total investments of $2m. This is based on the long term return on the Australian share market of 9.8%, and doesn’t involve picking the next high growth company (or taking the extra risk that comes with this).
If you start investing at age 30, you’d need to increase your daily investment to $30.11 to reach the same point. If you wait until age 40, your daily investment would need to be $94.06. And if you wait until age 50, you’d need to make a whopping daily investment of $322.06 to reach the same end goal of $2m.
This shows the power of getting time, but it also shows the power of getting started.
But here’s the thing. Most people think about investing, they know they should invest, but when it comes time to do the doing they stall. Because you’re worried about making a mistake, it’s easy to put this off for a tomorrow that never seems to come around.
If you fall into the inaction trap, you’re missing out on the opportunity to start seriously building your money momentum. And you’ll be forced to play catch up later on, saving and sacrificing more to get to the same result.
Saving money in a bank account feels amazing. You can see it building, you know the money is immediately accessible if you need it. You know it can’t go backwards. But cash is also the lowest returning investment of all the asset building options you can take. This is also a risk, it’s just a risk that most people don’t recognise as an actual risk.
I’m not saying to be reckless and take on as much risk as you possibly can. But there’s a position in between taking no risk and taking the maximum amount of risk that’s right for you. Finding what this position is for you will help you build more investments sooner and make faster progress. Find it!
One word of advice here - don’t let the fact you don’t fully understand investments and the risk that comes with them stop you from making a choice. Take the time to understand your different asset and wealth building options, their impact, their risks, and the trade offs so you can make the best choice for you - one you can be confident to act on. You want to make your choice from a position of confidence, not one of uncertainty or fear.
You can educate yourself by doing things like reading articles like this one, doing online research, learning by doing. But if you’re considering bigger moves that will have a significant impact on your financial situation into the future, one way to accelerate your education around risks and how to manage them is getting a good professional to help you.
If you’re early on in your journey to replace your salary by investing, this can give you the support you need to make some solid decisions and set your direction for the years to come. If you’re further along, advice can help you make sense of your options and get more out of what you have today.
It will also mean that once you choose the best path forward for you, you can have total confidence you’ve made the very best choice. This will mean you’ll be much more likely to follow through with full conviction to get the results you want.
The wrap
The principles of money and investing success are simple, but putting them into practice isn’t easy. The devil is in the detail here, and to make the most out of what you have today, what you’ll build into the future, and to find the pathway of least resistance to replacing your salary by investing, you need to take a smart approach.
The opportunity here is huge.
When you get your approach right, you’ll get clarity on the best moves to get from where you are today to the ideal money results you want for the future, delivered in a timeframe you’re happy with. This will give you peace of mind that you’re headed to where you want to be with your money, delivering true financial confidence and peace of mind, and avoiding financial stress and worry.
Just as importantly, you’ll be clear on the tactics that can get the most out of the money you have today while not taking on the wrong risks and while living the lifestyle you really want.
It’s worth working for.
Ben Nash is a finance expert commentator, financial adviser and founder of Pivot Wealth. Ben is the creator of the Smart Money Accelerator program that helps people build a second income investing faster, the Author of the brand new book, ‘Replace your salary by Investing’ and the host of the Mo Money podcast.
Ben also runs regular free online money education events, you can check out all the details and book your place here.
Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstances before acting on it, and where appropriate, seek professional advice from a finance professional.