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For many people, money is an emotional issue. Fears and anxieties tend to impact the way you think about your finances. If you want to grow your wealth by investing in the stock market, you’ll need to face your fears first.
Jaspreet Singh, host of “The Minority Mindset,” has some great insights about overcoming stock market anxiety. In a recent YouTube video, he offered his best tips for reluctant investors to overcome their worries. And if you’re already an investor, these facts are still very relevant! Learning is a lifelong endeavor, especially for investors.
Accept That the Stock Market Can Be Completely Crazy at Times
Sometimes the stock market looks like a wild thing. As Singh put it: “Crazy happens.” The Dow rises one day and then plummets the next. Individual stocks soar and fall unpredictably. Take the example of Meta: Over the course of one month, the stock fell from a value of $539 down to $453. The stock’s value later rose again to $521.
The market’s dramatic ups and downs can be, well, scary. Inexperienced investors sometimes get so alarmed by market fluctuations that they dump their stocks instead of waiting out the storm. This is an error, but it’s a common one.
Even Warren Buffett made this mistake as a first-time investor, panicking and selling his stocks after he watched their value plummet. Those same shares later soared in value, teaching Buffett that it’s not a good idea to sell stocks because of a momentary change in value.
The takeaway: With experience, investors learn that dips and crashes in the stock market are normal and do not indicate a major stock market downturn. Instead of dumping stocks, hold on and wait through the downturn.
Use Patience To Build Wealth
Singh said the real opportunity of the stock market “is only there for the people that actually understand patience.”
Experienced investors know how to take the long view. The stock market crashes on a semi-regular basis, with 20% dips, or “bear markets,” happening every 5.5 years or so. Over time, though, the top stocks in the market, represented by the S&P 500, have consistently increased. Allowing for inflation, the S&P 500 has increased at a steady rate of between 6.5% and 7%.
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In other words, instead of panicking over every shift in the market, remember that some level of volatility is completely normal and doesn’t mean that anything is fundamentally wrong. Smart investors know to hold on patiently through dips and crashes instead of selling off shares at a loss.
The takeaway: It takes time and patience to build wealth. Ignore daily market fluctuations, which usually level out over time. Take the long view, considering stock performance over the years, in order to maximize your profits.
Know What To Do During a Market Downturn
You’ve learned what not to do during a dip in the market. So, what does Singh believe investors should do?
A dip in the market is a great opportunity to buy up stocks. Think of a downturn as a time when shares are on sale. Since you know they’ll likely increase in value soon, take advantage of the temporary discount and buy up as many stocks as your budget allows.
Many experts, including Warren Buffett, give similar advice. Buffett once said, “Bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.”
The takeaway: Sometimes, what looks like bad news turns out to be an opportunity in disguise. Don’t be fooled by the doom-and-gloom headlines about the stock market: Dips are an excellent time to invest.
Choose the Right Investment Strategy
There are many different approaches to investing in the stock market. If you don’t have a strong finance background, you might struggle to figure out which strategy is right for you.
Singh recommended building an approach that lets you play to your strengths. How much time do you have to research individual companies and investment prospects? How high is your risk tolerance?
Investing in individual companies is a high-risk, high-return strategy. If you have the time and the financial know-how, this approach can generate high yields, but it can also lead to significant losses. For most people, it generally makes more sense to invest in an index fund, like the S&P 500.
The S&P 500 includes the 500 top companies in the United States and represents a cross-section of multiple industries. The index is often seen as an indicator of the U.S. economy’s performance. That’s why investors often recommend investing in the fund, as betting on the U.S. economy is widely seen as a very safe gamble. It also saves investors the time and stress they might otherwise be spending researching individual stocks.
The takeaway: Be realistic about your financial knowledge and capabilities. For the typical investor, an index fund like the S&P 500 is the best approach.
Understand Your Finances
Singh’s last tip could be the most important of all, since it can potentially save investors from a lot of heartbreak and loss.
Singh advised people to understand that when you invest, you are parting ways with your money for years. That’s why you should never invest money that you might need to cover your living expenses. Ideally, you should set up three separate bank accounts — one for saving, one for spending and one for investing.
Many investment firms allow customers to set up an “automatic investing strategy” that allocates a fixed monthly sum to invest. Typically, this approach uses direct deposit to automatically transfer a set amount of money from your paycheck to your investment account every month.
The goal is to keep your investments separate from your spending and savings accounts while ensuring that you don’t forget to build up your investment portfolio.
The takeaway: Investing in the stock market is a long-term strategy to build wealth. Don’t think of it as a get-rich-quick scheme, because then you’ll be vulnerable to market fluctuations. Be patient and take the long view.
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