Get Over Fear of Investing In Stock Market: Risk Management in Finance
My wife and I are the exact opposites.
I love Mexican food, she hates it.
I like the Duke University Blue Devils, she is a University of North Carolina Tar Heels fan.
I like the house cool, she likes it warm.
The list goes on and on. And the opposites don’t end when it comes to investing.
She would never want to invest money if it wasn’t for me. She likes to keep her money safe and secure in a bank account to not risk losing any value.
I, on the other hand, don’t want to keep any money in the bank because it doesn’t grow at all.
Clearly there is a difference of opinion between us on many things, but I earned her trust enough to get her to invest.
I’m telling you this because I know she is not alone.
In fact, by reading the many emails I receive, I know the No. 1 concern for most investors is losing money.
Today, I’m going to walk you through how to overcome that fear.
I get it, living firsthand with someone who has that exact same fear. You work hard for your money, and the possibility of losing it by “gambling” in the market is a nerve-racking venture.
So how do you overcome it?
The best way is with risk management.
Now, I know risk management can sound complicated, but it can be boiled down to one simple question: How much money can you lose and still sleep well at night?
That magic number will help determine how much to invest, what types of strategies to use and when to cut losses on certain trades.
And you can’t cheat — your answer can’t be $0.
I know, none of us want to lose money. And in an ideal scenario, you won’t have to worry about it.
But keep this in mind: Your portfolio will never go straight up.
That means as your account grows, you still apply this number to it. Even though you are playing with money you have grown over the years, don’t let that adjust your risk management strategies — you want to continue to sleep stress-free.
Look, there are a million ways to invest. Before you jump in, though, you need to figure out your risk level, and then you can determine which strategy will work best for you.
For example, if you are only willing to lose 10% of your overall account, then you may not want to invest in a strategy that sees wild swings. It could be too much volatility for you to stay in positions, as this number means you are likely a bit more conservative.
Simple, stock-based investments are what you are looking for.
If you’re less conservative and willing to risk a little more, maybe 20% of your account or more, then you should be more comfortable taking a higher-risk, higher-reward strategy. That could include stocks, but also options.
Once you have determined your risk level and made the dive to invest in the markets, or already are invested, now you must keep an eye on your portfolio.
It won’t always be up, so watching it daily could make you sick by seeing all the moves up and down. But checking in on it weekly, or monthly if it’s a longer-term strategy, is a must.
You don’t want to rely on your financial adviser or a stock market guru to say: “Hey, your portfolio is down 50%. What do you want to do?” At that point, the damage is done.
You have to stay on top of it and make it part of your routine. If it’s checking your portfolio every Sunday or at the first of the month, make a point to keep tabs on it.
Then, if it dips to your risk level you already defined, you know what to do — close it out, and take some time to re-evaluate your investments.
But do not walk away from the market entirely.
That’s because the market is the single best place for you to put your money and grow your wealth enormously.
So you have to overcome this fear of losing money to ultimately make money.
The growth the market has accomplished just in 2017 was remarkable, and it’s going to be much higher if you are investing for years and utilizing market-beating strategies.
Chad Shoop, CMT
Editor, Automatic Profits Alert