There’s a simple reason why so many people are afraid to invest: loss.
But the problem isn’t necessarily the loss itself; it lies in our [mis]interpretation of what losing money means
Take for instance an investor who invested $10,000 and lost half her capital shortly after. She would most likely feel bad about her decision and perhaps even quit investing. But what if the same person invested $10,000 in stocks in 1920?
Today she would be sitting on $20 million dollars!
This is how markets work over time – they go up. And just like gravity can’t be avoided, neither can loss. The only thing we can choose is to either let it stop us from reaching our financial goals or embrace it by learning to deal with loss.
You see, financial freedom does not come for free; you will need to make significant sacrifices before achieving your dreams – which might include saying no to friends who want you to spend beyond your means, restricting yourself when buying new clothes (when there are holes in the ones you already own), refusing the latest and greatest technological gadget, etc.
This is how you grow your wealth: by daily sacrificing little pleasures in order to save for bigger goals and even BIGGER pleasures (you know – like that dream home, car, or exotic holiday).
The lessons we learn from loss can make us stronger investors & better; it’s what separates the winners from the losers.
Allow me to share with you a few ways I’ve learned to overcome loss
1. Hone your skill of “letting go” (financial and emotional).
Acknowledge that while some losses are avoidable, most aren’t. The sooner you accept this fact, the faster you’ll be able to move on from a loss. For example – If someone gives you bad investment advice, you can choose to avoid that person in the future. But if you buy a stock at $10 and it goes down to $5, the only way for it to go back up to $10 is for you to wait – there’s nothing else that can be done.
2. Keep your eyes on the prize.
As I wrote earlier, financial freedom doesn’t come for free; investors who get rich make significant sacrifices before reaching their dreams (like saving 50% of their income). Always remind yourself of what your goals are (that dream home, car, or exotic holiday) and visualize yourself enjoying them while you save/invest today. This will give you the motivation to keep going instead of quitting when the market scares you with a loss.
3. Be humble and learn from your mistakes.
If you make a mistake, acknowledge it; don’t blame the market or other people for your decisions. Instead, ask yourself: “What did I not consider before making this decision?” and apply it to future investments (in both good times and bad). Also, never let hubris get in the way – no investor is perfect – we all make losses we could have avoided; we just need to admit our mistakes and resolve not to let them happen again.
4. Don’t fall for fads and mass hysteria (“everybody’s doing it”).
When was the last time you checked Facebook only to find that every single person you know is getting divorced? Chances are that when you find yourself in the midst of a fad or mass hysteria, you’re in trouble!
Just think about it for a minute: would you consider buying Facebook stock at its all-time high? How about getting married after watching all your friends tie the knot? Chances are your answer will be “no” to both questions. Yet, many investors make emotional decisions when they are part of a crowd (like taking their money out of the market when everyone else is).
5. Always ask questions.
Find an experienced investor who can be your mentor and learn from them what to look for before making any decision – which includes investments, relationships, and even jobs. Every mistake you avoid by asking good questions is one less loss you’ll have!
While some people might consider losses to be negative, I consider them to be positive because they force me to work harder and smarter. By embracing loss, you can move forward more quickly than others who quit at the first sign of trouble.
Any successful person will tell you that once you get the lesson, the pain goes away. The key is to not repeat the same mistakes over and over again. So always keep in mind not to repeat the same mistake.
The next time you find yourself in a bind, remember all the wise words I’ve shared with you today (if not for your benefit then for your child’s). So take the right decision at the right time for better success.