I have spoken to so many friends around me about investment, the common reaction is “I don’t want to lose money”, “ too much risk”, “too complicated” and so on. Even those who received a good education and work in a good job, they, however, shy away from learning money management skills, except, well, saving. And it is a common truth that we learn in universities how to be a qualified employee, which means we learn how to MAKE money through jobs, but we never learn how to MANAGE or INVEST money in school, I didn’t. Have you?

Let me dissect why so many of you are afraid of investing.

1. Lack of basic understanding or misunderstanding

When people mention investing, it always associates with investment bankers, wall street, analysts, dealing with a lot of numbers and spending a lot of time reading companies’ financial statements, and so on. Investing becomes a unique skill possessed only by people who work in financial industries. Even for those who work in financial industries, many of them do not know how to manage personal finance. Why? Because we are trained to perform a job, we are not trained to manage personal finance with our education.

So the biggest challenge for those is to overcome the misconception of investing and start learning the basics. First to open your mind and accept new perspectives and knowledge. If you firmly believe investing is risky and too complicated, you will never be able to see the other side. It starts with a mindset change. Investing can be passive, it can take as little as Zero of your time if you built a portfolio and auto-invest. Start reading some easy to understand books would be a good first step. For example, reading books like <Rich Dad and Poor Dad>, this book is so easy to understand, and each primary school student can start reading it. Or read <The Bogleheads’ Guide to the Three-Fund Portfolio: How a Simple Portfolio of Three Total Market Index Funds Outperforms Most Investors with Less Risk>.

2. Do not have enough money to start with

Another misconception of investing is that people think they need a lot of money to start. Which is absolutely not true. We are living in this amazing digital age that almost everything is at our fingertips. Imagine if someone wants to buy a company share in 1950, he or she needs to contact a broker, the broker initiates a trade ticket, the trade is executed. This process takes a considerable amount of time. And the commission was quite high back then due to the limited competition. Foreign company shares almost nonexistent due to inaccessibility. And now, anyone can take out the smartphone or on a computer, create a brokerage account, and transfer money through e-banking to the brokerage account and buy a company share immediately. Not only that, but you can also buy functional shares. So to start investing, you do not need a lot of money. You can start as little as $1, or less. Even the minimal requirement of $2000–3000 for index funds (for example S&P500 index) can be replaced by buying shares from an index-tracking ETF (for example the equivalent of VOO from Vanguard). It tracks the same companies as an index, but you do not need the minimal investment capital to invest, how flexible is that!

3. It is too risky and I don’t want to lose money

I assume those who think investing is too risky, you maybe think it is a game of luck. The market goes up and down and you need to buy and sell at the right time to make a profit, right? Yes, you are right, but that is only half of the truth. There are active traders who trade frequently and that’s what they do for a living. There are people like you, me, or your neighbors who are working a full-time job (not as a trader), then you don’t TRADE, you INVEST. In another way, you don’t speculate the movement of the market, you invest in the market. According to Benjamin Graham, author of <Intelligent Investor> and mentor of Warren Buffet:

“An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.”

“the market price by established standards of value,” while speculators “base [their] standards of value upon the market price.”

Another famous quote I like is “ it is the time in the market, not TIMING the market”. What it means is that it is more important to enter the market and start investing, rather than try to bet on the lows of the market and sell at high. Because trying to timing the market will never work. It is also proven that 95% of actively managed funds perform worse than a passively managed ETF which covered a wide range of companies. If you can’t beat the market, buy the market. You will then question, how is the overall market performing then? Well, it definitely performs better than your bank deposit interest rate (at least the case in Switzerland).

Look at the S&P500 Index performance since 1980. It is trending up. In fact, the average annual return in the past 10 years is more than 15%.

BUT

If you are looking at the movements monthly, then you will get this chart:

It is even scarier if you look at the chart on a 5-day basis:

Imagine if you want to time the market and do the ‘buy low sell high’, how can you deal with all the ups and downs while not speaking 10 hours per day on analyzing data? So going back to the first chart, if you understand what is investing and do it consistently over time, it will bring you great returns. If you try to beat the market, you will most likely lose money. Is it too risky to invest? if you speculate, then yes. If you understand and have a diversified portfolio, then it is no. Your investment risk is as great as the world would go down (if you invest in the total world market)…

Conclusion

So my point is, investing starts with understanding. There are misunderstandings or misconceptions about investing and that blocks you from creating more wealth in the future. I recommend some books that helped me to learn more about investing (read in sequence):

1. Rich Dad Poor Dad. You can read other books of the Rich Dad and Poor Dad series. What I like about this book is that it is so easy to understand. It is a great book to start learning about personal finance.

2. MONEY Master the Game: 7 Simple Steps to Financial Freedom. This is a rather thick book but I finished it very fast because the content is really useful. Some of the contents are suitable for US readers but the concepts which the author teaches in the book are universal.

3. The Bogleheads’ Guide to the Three-Fund Portfolio: How a Simple Portfolio of Three Total Market Index Funds Outperforms Most Investors with Less Risk. This is really the classic among the ETF investors especially those who plan to retire early and achieve financial freedom. Three fund investment is popular. You can read my other article <Do This To Retire Early> to understand why this book is so popular.

4. Intelligent Investor. The classic among the classics. Although I understand how to be an investor, not a speculator, this book just dissects all aspects of speculation and investment. It is a great book to learn more about personal finance, the content is deeper than <Rich Dad Poor Dad>.

5. Think and Grow Rich. I have no other words for this book, I have bought 2 of it in different languages. The start of everything is the mindset, if you set the right mindset to start, you can start reading this book.