5 Little-Known Mistakes *Most* New Investors Make with Investing (And What to Do Instead!)
Welcome back for Part 2 of the 5-Part Mini-Masterclass on Investing!
Ready to supercharge your money? This mini-masterclass is structured to help you learn about investing, remove doubt, and increase your confidence so you can get started making your money grow.
While money can’t buy happiness, it CAN buy freedom… freedom of time, location, and choice. It can put you in total control of your life so you can spend your days EXACTLY the way you want to - not the way your boss decides.
So if you want to ditch the golden handcuffs that keep you chained to working day in and day out and trade them for the golden ticket to financial freedom, let's dig into the 5 Little-Known Mistakes *Most* New Investors Make (And What to Do Instead!).
I’ll walk you through 5 things that might be keeping you from getting started investing, the practical and mindset strategies I used to move past them, and why it's key to start investing ASAP.
1) THINKING THEY HAVE TO BE DEBT-FREE TO START INVESTING
First of all, you don’t HAVE to be debt-free to do anything. Well, maybe not anything - I can’t speak that broadly - but I know for a fact you do not have to be debt-free to start investing.
So if that’s something you’ve been telling yourself that’s been keeping you from taking the plunge, this is your permission slip to let go of that belief.
I repeat: you DO NOT have to be debt-free to start investing!
You might be thinking, “Okay, Jess, so is there a strategy for investing while you’re in debt?”
And the answer is: there are many.
Here’s what I did. I organized all my debt in order of highest interest rate to lowest interest rate, and I focused on paying off any debt with an interest rate that was higher than the average return of the stock market. Once I only had debt with interest rates lower than the average return of the stock market, I immediately prioritized investing over debt repayment.
Let me give you an example that illustrates why I chose to do it this way.
EXAMPLE: PRIORITIZE DEBT REPAYMENT OR INVESTING?
Let’s say you have $100. With this $100 - and technically with any money, really - you have three options. You can 1) Buy something like dinner and drinks which can be fun, but doesn’t do anything for you financially. You can 2) pay down debt. Or you can 3) buy investments.
Let’s say you’re deciding between using this $100 to pay down debt or invest. Now, to make math easy, let’s say the stock market performs on average at 10% (and this is important because this is what you’re comparing your debt back to so let me say it again… let’s say the stock market performs on average of 10%).
Since you’ve already paid off all your debt with interest higher than 10%, the only debt you have left has an interest lower than 10%... let’s say 6%.
Let’s play out both scenarios. Let’s say you use your $100 to invest and the stock market performs at that 10%. You’d make $10, but because you didn’t use that $100 to pay down debt you’d lose $6 to interest. BUT you’re still up overall. Why? Because you made $10 in the stock market. So $10 made in the stock market minus $6 lost because you didn’t pay off debt means you’re still up $4 overall, right? Right! Stick with me.
Let’s say, instead, you decide to use the $100 to pay down the debt. You’d save $6 of interest, but you’d miss out on the $10 you could have made in the stock market. So you’d be down $4.
This is a simple example with low, hypothetical numbers but I hope you see the point. Being intentional about where you choose to put each dollar can make a difference in the long run.
But the biggest point of all is that you DO NOT have to be debt-free to start investing and taking advantage of the growth that can come with it.
2) THINKING THEY HAVE TO HAVE A LOT OF MONEY TO START INVESTING
Although, indeed, growth from compound interest (or, in other words, growth in the stock market) happens fastest when there’s a large base of money to go off of, none of us have a lot of money when we’re first starting AND remember that $1 is more than $0.
So if you’re telling yourself you don’t have enough money to start, stop!
Do you have $1? If so, then you can start investing.
Again, compound interest on $1 is more than compound interest on $0.
Plus, you might have more to put toward investing than you think… I suggest listing all your monthly expenses and spending in one place so you can easily compare it back to your income.
If you’re spending less than you’re making, then, voila! You have extra money left over that you can save or invest!
Need help? Check out my free Budget Calculator Guide to get organized.
3) THINKING THEY’LL LOSE ALL THEIR MONEY BY INVESTING
I get that investing, especially when you’re first getting started, can be scary, but I’d like to use an analogy on this one.
Not investing because you’re scared of losing all your money reminds me of being afraid to fly because you think the plane might crash (which I used to struggle with, by the way). While it’s true the plane could go down, it’s highly unlikely (you may have read the same research that I did that said you’re more likely to die on the way to the airport than you are in the plane).
From the perspective of seeing the world, forgoing travel because you’re scared of flying limits you in a way that maybe nothing else could.
I feel the same about money. Forgoing investing because you’re scared the market will crash limits you in a way that maybe nothing else could.
It’s true that, yes, the stock market could crash and everything could go to $0, but it’s highly unlikely. And if you’re like, “Well, Jess, it’s happened before!” - you’re right. Just like planes do crash, the stock market has, too.
But then I’d ask you, “Did the stock market come back afterward?” Historically speaking, the answer is “Yes.”
If you’re not investing because you’re afraid, I’d recommend 1) Making sure you mitigate your risk well, 2) Starting small and working up, and 3) Learning as much as possible - instead of avoiding.
Remember: you don’t know for sure that the stock market will crash, but one thing you do know FOR SURE is you’re losing money every day to inflation. Investing is a way to combat that.
4) THINKING IT WILL TAKE A LOT OF TIME
Let me let you in on a little secret… generally speaking, I spend less than an hour PER YEAR messing with our stock market investments… and do you want to know how much money they’ve generated so far this year?
Our stock market investments ALONE have brought in over $18k+ so far this year and we still have another month to go. And, better yet, I’ve done essentially nothing.
I don’t pick my stocks, I don’t analyze the market, I don’t watch the news - nothing.
I’ve automated the entire process, and you can, too.
Investing does NOT require much time. Day trading does. But investing does not.
There’s some work on the front end figuring out how much you can afford to invest and selecting a brokerage and someone you can trust to invest on your behalf.
Beyond that, it’s usually an annual review of your goals (which takes about an hour) and that’s IF you decide to do the review… if your goals haven’t changed significantly, you might not need to.
In which case, that would mean after the initial setup, you’d spend no time at all managing your stock market investments while they grow on auto-pilot in the background.
5) THINKING THEY HAVE TO HAVE A ROCK-SOLID STRATEGY
The only strategic questions you need to have the answer to are, “On a scale of 1-10, how aggressive (read: risky) do you want to be with your investments?” and, “What age are you planning to retire?”
And if these stress you out, you can always just aim for average, which would mean opting for about a 5 on the aggressive scale and selecting the normal retirement age for your country.
Also, remember that you can change your answers at any time, these are not set in stone.
But, beyond that, there’s not much more. When you find someone to invest for you, they’ll want to know these two things, then they’ll look at how old you are and see how many years are between your current age and the age you want to retire then they will choose investments for you based on that timeline, and the number you selected for your risk tolerance.
It truly can be that simple and let me remind you again that I DO NOT PICK MY STOCKS. I never have. And, so far, over the lifetime of my stock investments, they’ve returned over $41k+ with almost no effort or time required on my part.
The only “strategy” I had to do to get started was to pick a number between 1 and 10 and elect my retirement age. It was that easy.
THE BIG PICTURE
Learning about investing IS AN INVESTMENT! It can take some time upfront but once you ‘get it’ and realize it does not have to be super complicated with stock ticker symbols and men running around on Wall Street in suits yelling financial terms… It becomes easy.
With a simple system and some automation, your money can be invested and can grow on auto-pilot behind the scenes while you’re out living your life.
Financial freedom is not that far out of reach and it’s available to you. But the longer you wait, the harder it will be. I’ve talked about this before, but growth from stock market investing comes from compound interest and compound interest needs TIME to build and time to work. So the longer you wait, the more you could miss out.
NEXT STEPS
If you’re nodding along and saying, “YES, I think I get it - investing CAN be easy!” head over to the show notes and grab my new 14-point checklist for new investors who want to get started investing the RELAXED way.
It’s your single-page list of to-do items to set up automated investing so you can get set up in a matter of days, not months, and carry on doing the things you want to do with the peace of mind that comes with knowing your money is growing in the background.
If you’re tired of worrying about money, make this a priority in your life. Now is the PERFECT time to put this at the top of your list. Financial wellness is a critical piece of self-care. So make sure you’re taking care of it… because, in the end, it will help take care of you.
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