Hey friends! I’ve got two weeks of great guest posts lined up for you while I get ready to teach a class at a local university here in Ottawa. Today’s post is from Erica at Investment Zen, and is near and freaking dear to my heart – she’s going to break down why no, you don’t need to pick stocks to be an investor, and what your likelihood of success in stock picking actually is. Please give her a warm welcome, and enjoy!
The word “investing” terrifies a lot of people. Some seem to think it requires a degree in something unpronounceable, and others think it’s no different than playing the lottery. Both of those people are wrong, sorry guys. Investing can be as simple as few clicks on your phone every month. No, it isn’t magic. It’s all about averages and statistics. Don’t worry, you’re not the one who has to worry about the math.
A lot of people also hold the misconception that investing takes a lot of money. That isn’t true, either. Sure, having more money is great, whether you’re investing it or not, but that’s not what will determine whether you make money in the market.
The real trick, like many things, lies in starting early and being consistent. Long-term investments nearly always make money, and carry a whole lot less stress than short-term investments.
If you spend half your day watching the market and worrying about whether those coffee bean shares might drop another half point because someone invented a new energy drink, you’re heading for an early grave. Stress kills! No joke, ask your doctor.
On the other hand, if you spend five minutes a month putting a few bucks into an investment account and plan to leave it there for a while, you may be heading for early retirement instead.
You can easily find some amazing automated investment programs where you don’t have to know, or even really care, which specific funds your dollars go into. There are people with advanced degrees behind these programs that get to worry about all that math and magic for you. Even better, most of them only make more money when you make more money, so they literally have a vested interest in picking the best investments for you.
You can have a daily worry session over your stock investments if you want, but active fund management only improves your odds of a successful investment by 3% over passively managed funds. That’s not worth the 95% increased stress, personally, but it’s your call.
Just in case you’re a visual person, this infographic will break down your odds of picking a winning stock. (Hint: they’re not great if you pick individual stocks over funds!) Or the odds of your robo-advisor or investment firm picking one for you, if that’s more your style. Whatever your style, just invest! You’ll thank me later.
What do you think – anyone else breathing a giant sigh of relief like I did when I read this? (Yes, I’m a committed robo-advisor investor, but it’s still nice to be reassured every so often!)