One of the biggest misconceptions associated with investing is that it is complicated and hard. This misconception is probably one of the reasons that so many people feel inadequate when it comes to making investing decisions.
Indeed, according to the 2013 Jackson Investor Education Survey, most people feel as though they don’t have the education they need to make good investing decisions. According to the survey, 42 percent of men and 55 percent of women feel as though they don’t have enough financial knowledge to make investing decisions.
If you are concerned about your ability to invest, perhaps the answer is to learn a little bit more about investing, and how it works.
Idea #1: Get Out of the Stock Picking Mindset
While I don’t have any hard data to back this up, conversations I’ve had with others lead me to believe that many people still inextricably link investing with stock picking. From my grandmother to my father to my younger brother, as well as many of my neighbors, most of the people I know are surprised to find that stock picking doesn’t have to be a part of investing.
“I don’t know enough to be able to know which stock to choose!” is a regular refrain. Once you are out of the stock picking mindset, though, investing becomes much easier. It’s possible to invest in index funds that mirror the performance of the market overall. If you are unsure about your level of knowledge, it can make sense to start by investing in a low-cost, all-market index fund. While your money starts growing, you can have the time to do a little more research into different fund options. You can educate yourself so that you feel more confident making different decisions later on.
The important thing is to get started.
Idea #2: Learn How to Invest with Dollar Cost Averaging
I have a friend who was absolutely certain that he needed at least $10,000 to start investing. A little education in the right place can solve this misconception. It’s possible to open a brokerage account online with as little as $25, and it’s possible to invest regularly with as little as $25 a month. With dollar cost averaging, the idea is to build your portfolio over time. You buy as many shares (and partial shares) as you can afford with a set amount of money each month. Over time, you portfolio grows. As you earn more money, you can invest more each month.
Don’t feel like you have to wait until you have a significant chunk of capital to get started. Regular investment in an index fund or ETF each month can be a good way to get started and buy you the time you need to learn a little bit more.
Idea #3: Use the Resources at Your Disposal
Now that you have started with a simple investing plan (funds and dollar cost averaging), you have the time to learn a little bit more about investing. The Jackson survey suggests that many respondents wish they had more time to learn about investing. You can use the resources available to you to find out more about investing over time. Learn one or two concepts every few days, and you’ll soon develop your own style, and figure out what you need to do in order to meet your individual goals.
Investing doesn’t have to be complicated. Just learning a few of the basics can be enough to get you started, and buy you the time (while earning a return and building wealth) to go a little bit deeper. Once you have that increased knowledge, it is easier to keep investing and making decisions that you can feel more confident about.