Why You Shouldn’t Care About Investing
If you’ve had your ear to the ground this week you’ll no doubt be sick of hearing how the Coronavirus is spreading fear amongst financial markets. Whilst many are busy trying to safeguard investment accounts and others are trying to make a quick profit, if you are early in your financial journey I urge you to take a step back, breathe out and forget about investing — at least for now.
“Just In: US Stocks sink the most in two years and the S&P 500 plunges 3.4%” — Bloomberg via Twitter
Scary stuff right? The current financial landscape is genuinely worrying. Not only is the impact of the Coronavirus alarming from a health perspective, but it’s potential effects on the global economy are hugely significant. If you’re just getting started trying to tidying up your financial ship, it’s easy to feel paralysed by these kind of headlines and make you wonder if you should be taking action. My message is that in all likelihood you should do nothing, we’ve other things to think about first.
The importance of when, not how
When you don’t know much about the world of investing, it’s hard to get started. With so many opinions on what is right, wrong and the sure fire way to a million dollar retirement account it can be really hard to find a way ahead. It can also be hard to understand exactly when you should be concerning yourself with how to invest. I think that’s a much more important question, and it’s much later than most people think.
I’m no financial advisor, but what I’ve learned is that if you try and shortcut the process of building a solid financial foundation, jump straight to trying to invest and make profit, you will likely set yourself back potentially years in your journey to financial freedom.
I think it’s often forgotten that investing is something you do with money saved, if you haven’t saved any, you can’t invest it. Sure, monthly savings plans directed at a diversified portfolio are a cornerstone of a solid investment plan, but if you’re doing that off the back of poor money habits, debt and no budgeting skills you’re missing the point.
Don’t get me wrong, I’ve been guilty of this in the past myself, many times. When I was younger I thought the path to riches was through finding the next big thing, making big returns on investments and compounding that over time. Yes, those things are obviously nice, but for us mere mortals they are often also just pipe dreams, and without a strong financial foundation lead us to allow impatience and FOMO to drive our choices.
If you try and jump the gun with investing, you’ll likely be using money you need for other things and ultimately, when things get tight, you will liquidate those investments in order to pay for life’s little surprises.
If you do this, you are giving up control over your finances. You are trying to appease the appeal of market returns and will ultimately end up with long term pain for potential short term gain.
Build a launchpad
In order to launch ourselves to great financial heights we need a launchpad. Freeing ourselves of debt, being disciplined with our finances and working to build up a cushion of emergency savings are all things that in my opinion (and of course, this is just an opinion piece not financial advice) should be done before we concern ourselves with how to make steady returns over time with investing.
As un-sexy as it sounds, investing is probably one of the last steps on a health financial journey. Eradicating debt, building an emergency fund, and plugging the leaks in our finances are all things that need to be done before we consider how to invest. We need to stop losing money before we worry about multiplying it.
If you go through the process, not only do you build discipline, but you build knowledge and confidence. I am of course not saying that you shouldn’t invest, I’m just saying invest when it’s time to invest. If you take that on board, it makes it much easier to read the scary financial headlines and feel somewhat comforted that at least for now, it’s something you don’t need to be overly concerned with.
Run a marathon, not a sprint
When you do get to the point when you are ready to invest, you will want to protect yourself against these big events that have the potential to really change the course of financial markets. How do you do that? Well truth be told that is a much longer story. In brief though I personally believe that staying invested, reducing transaction costs and being way more diversified than you ever though necessary are key things to think about — but like I say, consult a professional for that.
Forget the upside -feed the ducks instead
So many people are interested in the upside. How do I profit? How much can my investments make in a year? How much do I need to average to make a million come retirement? Yes, these are all questions I’ve asked myself too but they are short sighted.
The important thing to remember is that whatever big market mover that comes along, whatever triggers the next financial crisis if you don’t have your ducks in a row with your basic finances, the impact on your investments will be the least of your worries.
So for now, at least until you are ready, don’t worry about investing — just concentrate on feeding the ducks.