Investing may come naturally to some and for others it may seem like it’s a foreign language. Learning about personal finance and investing is not something that our education system prioritizes. We never formally learned about the process unless we taught ourselves or we specifically majored and began a career in it. I’m here to say that it’s NOT hard. But it does take discipline and a healthy investing mindset to be able to successfully build your wealth over time.
What Do I Mean By A “Healthy Investing Mindset”?
A lot of the success we reach in our lives is dependent on our mindset and our outlook. Our relationships, our careers, our energy is driven by the way we think about ourselves and the environment around us. The ability to harness our mindset to create the change we want to see in our lives is challenging, but necessary.
So a healthy investing mindset has to do with the way we think about and view investing. When you begin in your journey of becoming an investor, it’s important to take ownership of the process with confidence and commitment. Here’s what I mean…
Understand Your WHY
Why are you investing? What are you hoping this will provide for you in the future? How will it impact your life?
Like with anything in life, having a clear understanding of and commitment to why you are doing something is single-handedly going to help keep the momentum going.
Life gets busy, things get tough and it becomes easy for people to stray away from their goals because they lose sight of the real reasoning and purpose behind why they were doing something to begin with.
Tie in your goals with your investment strategy as a reminder of your WHY.
Your WHY for investing may be to live lavishly in retirement or to save for your child’s college education or to be able to buy the vacation house by the water. Whatever it is, directly tie your financial goals in with your investing strategy. This will be that “friendly” reminder that without one, you may not be able to count on the other. Without investing, will you be able to afford the college education? Without investing, will you be able to afford the house by the water?
Create A Clear Investment Plan
Create an investment plan for yourself that will serve as a guide for you moving forward.
- Identify some of your financial goals for the future
- Determine the ongoing amount you are comfortable investing and when you plan to invest it.
- This is the process of dollar cost averaging. Choosing a fixed amount to invest at a specified time over a long period of time. Although you have the option to invest all of your available money into the stock market at once, this is typically not something I have advised in the past solely because of the emotional distress created when letting go of or investing a lump sum all at once. For many, you held onto cash or didn’t invest because there was fear. Fear of the unknown. So for myself, I have an easier time and much prefer to commit to a dollar figure on a monthly basis rather than transfer all of the cash at once to be invested.
- Understand your risk tolerance. In other words, if you will lose sleep at night if you are invested a certain way, then you need to adjust your strategy. Your investment strategy needs to be aligned with your comfort level. It’s the only way you will be able to commit to it long term, especially when the market is volatile.
Similar to that of your 401K retirement contributions – automate it. Create the savings & investing goal, the amount you want to invest in whatever time frame works for you…and stick with it. Despite the market volatility, you have a plan. Create a discipline and habit around your investment strategy.
Automation will be one of the best ways to secure the success of your plan. Automatically have a percentage of your income going to your 401K or your HSA. Automatically have your monthly withdrawals taken from your account and placed in the 529 college savings plan. You get it. Make it easier for yourself by automating the transfers to the investment accounts and investing in your predetermined investments.
Automation will remove the opportunity to second guess yourself and your plan in times of uncertainty.
Invest In Things You Understand
You do not need to be a financial expert to invest.
Perhaps you will not know every single minutia detail about the specific investment but my point lies in having a general understanding of what you are investing your money in.
As an example:
You may invest in an index fund that tracks the S&P 500. You may be unsure about all the holdings within that index fund and perhaps aren’t sure of the way an index fund operates. But you’ve learned that you have invested in some of the largest companies in the US.
What I don’t love seeing is when an individual invests in a company or a fund or dare I say Cryptocurrency because they were told it was going to be the next big thing. But when asked what the investment does or how it makes money….crickets. This can be a slippery slope when you’ve made a commitment to have a long term investment plan, but have no idea about the investment and it’s potential or lack thereof.
There is already uncertainty as it relates to investing. Don’t add another element of uncertainty by investing in something you don’t understand.
Your Emotions Need to Take A Seat
Do NOT look at your investments every day.
You will drive yourself crazy trying to make sense of something that at times is over-reactive and irrational. The daily ups and downs will exhaust you and make you question both your long term strategy and your investment choices.
The stock market goes up and it goes down. This we know and should expect. Historically, the market itself has trended upward over time and that is honestly the only thing that should matter. If you plan to hold something for a long period of time then the day to day performance of the investment should not impact you at all.
Often times people think that investing requires you to be actively involved on a daily basis. Buying, selling and taking advantage of market swings and bringing you on a roller coaster ride of emotions. This is just simply not the case. In fact, most of the success that people will find in investing is by sticking with their plan, consistently investing and stepping aside to let their money work for them without interruption.
You Have the Power to Create Wealth
Investing can be for everyone. Get on board. Educate yourself, create awareness around your current financial picture and goals and establish an investment plan to grow with you over time!
The combination of a healthy investing mindset and a consistent investment strategy will have a powerful impact on your financial future.
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