I've read hundreds of books, articles, and blog posts about money. I save. I like to pay cash. I avoid consumer debt. I know how to make more money.
Sounds good, right? Well, I have a skeleton in my closet: I am afraid of investing. And 2013 is my year to conquer it (or at least subdue it a little).
At first glance, you may not believe me. After all, I started contributing to a 401(k) when I was 21, getting the maximum employer match. Since then, I've always contributed enough to get the employer match and sometimes more. In addition to my company-sponsored retirement accounts, I have my own personal Roth IRA that I contribute a small amount to each month.
Why then this fear of investing?
Fear causes all sorts of dismal things, not the least of which may be missing out on compound interest and decreasing the timeframe in which to invest. Do we share any fears of investing?
- Losing money. I am not afraid of losing money…now. I mean, I would rather not, but I can overlook a short-term loss for a long-term gain. But plenty of people, like my husband, are. Instead of embracing some risk, some people want to leave their money is very safe accounts – accounts that don't keep up with inflation, so the money is lost after all.
- I can't save enough money, so why try at all? No one wants to spend their retirement worrying about money. Still, the long-term goal, the amount of money required, and the current financial responsibilities of today make it difficult to get past this fear.
- Making the wrong decision. This is my greatest fear: What if I decide to invest in this and only get an 8% return on my money when I could have invested in that for a 10% return? A 2% difference over 40 years is HUGE. How would that affect my children and grandchildren?
- It's too hard/I'm not smart enough. Oh, yeah. This, too. I prefer wading through ways to earn more money or cutting expenses to deciphering methods of investing. Real estate? Stocks? Gold? Mutual funds? Index funds? Ugh. And what about all those terms? Dividends, small-cap, growth vs. income, mutual funds, and ETFs. It's enough to make me go make homemade laundry detergent and forget this investing stuff. But that Robert Brokamp is one smart dude. I hope you're reading his stuff. He's smart and funny.
Investing for the future
The best way for me to be mobilized (instead of paralyzed) by my fear is to analyze my goals: Why do I really want to invest? I've mentioned retirement, but that's not why I want to learn more about investing. Though we're just in our early 30s now, our goals will change. But right now, we intend to live in our current home until we can't take care of it anymore. Since our goal is to pay it off in five years, we'll have decades without a mortgage. We won't be buying a vacation home or taking exotic trips. We have a small amount of acreage, so we can grow our vegetables and raise our own animals. Obviously, I don't know the future but it seems like our current savings rates will be more than enough to cover our retirement needs. So why worry about getting an 8% rate of return instead of a 10% return again?
A big retirement nest egg and foreign beaches are not why 2013 is my year to learn about investing. No, I have another dream, and it's called choices.
This isn't something new. Over the last three years, we've been preparing for a drop in income, so when a few opportunities presented themselves, we could say, “YES!” without worrying about how we would pay the bills. January 1, my husband started his dream job. His 2013 income will be just 60% of what he made in 2012. Because we've practiced living below our means, we feel (kind of) ready to live on less.
This experience showed me that, when our income exceeds our expenses, we're not a slave to a paycheck anymore. We can say “yes” when we want to and “no” when we feel like it.
While we're getting there, we aren't there yet. Take me, for instance. I have this business idea. I think it's a good one. You know, low overhead, high barrier to entry, recurring revenue, and internet-based. But I don't have time right now to focus on it. I don't have the time, because I am trading my time for money.
And this, this, is why I need to conquer my investing fear. If we had significant monthly investment income, I would no longer have to trade my time for money, and I could start my business. If I no longer had to trade my time for money, I could choose to spend even more time with my family. I could choose how to spend my time. Period.
Yes, investing for the short-term is something that I've ignored, for all the reasons mentioned above. But now that I've gotten a taste of freedom, I want more. If I really want more choices, I have to learn about investing.
The investing plan for 2013
So, my husband and I created an investing plan. Throughout the year, I'll share posts occasionally about how I am learning more about investing and what I'm doing about it. I imagine that my experiences will be too elementary for many of you (if that's you, Brokamp's posts are so good), but I will share as much as possible to help those of you who feel, like me, that Investing 101 is still too hard.
I hope my investing homework will pay me in big dividends. (You knew that was coming, didn't you?)
If you have a fear of investing, how have you overcome it?
Lisa Aberle is a college professor by day and a freelance writer by night. Always an aspiring writer with an interest in money, she once ironically misspelled “mortgage” during a spelling bee. Most of her current adventures take place on the four-acre mini-farm she shares with her husband in the rural Midwest (where she writes with gel pens whenever possible).