Intimidated by investing? Here are three tips to overcome your fear

Dubai: For many people, investing seems intimidating. A number of surveys indicate that majority people worldwide aren’t currently investing not because they lack knowledge, but rather it’s their confidence to make investment decisions that needs work.

According to one such recent global survey on what's holding people back from investing, here are the four most common reasons that were shared by residents worldwide:

1. I'm uncertain about investing after the stock market crash a few years ago.

2. I know I need to invest but I don't want to lose money.

3. I think about starting to invest almost daily now, but I just can't do it.

4. I want to get a better return on my money, but I'm not sure about the risk.

Taking that initial leap can probably feel overwhelming or provoke a lot of ‘what if’ scenarios, but you might start to feel more comfortable if you consider these tips when starting out.

1. Don’t put too much money when you start investing, start with small amounts

Determine the amount you feel comfortable investing and choose a goal that is appropriate to where you are right now – and where you want to be. You can revise your plan as your investment goals change over time.

Begin with sums of money that you can afford to lose and not risk too much while learning. As you watch your balance grow, you'll become more comfortable investing more considerable sums if you can afford to.

2. Set investment expectations or goals that are as specific as possible

Investing goals don't need to be complicated. Your goal could be to have Dh1 million in assets you can convert to cash by the time you're 65 for retirement income, or it could be even a specific goal like for example, Dh100,000 for a car of your choice in let’s say, within the next two years.

Or financial planners often reiterate that you need to ask yourself where you want to be financially in one, five, or 10 years. Different types of investments work differently, meaning you can set target dates and financial goals for each of your assets.

3. Consider your risk tolerance, and understand the risks and rewards of an investment.

It’s likely your investment won’t change much from day to day or even month to month. But even if it does, veteran investors caution that you should try not to let volatility scare you. It’s normal for market cycles (market growth and decline) to fluctuate and there is no one-size-fits-all approach.

Individual time horizons (investing timeline, or how long you plan to hold an asset before selling it) differ and may not align with market cycles, but it’s important to remember that time in the market is more important than timing the market.

Avoid moving your money around every time there’s a change in the market. This makes it more likely you will end up buying when prices are high and selling when your investment is worth less. Remember that any loss is only on paper – until you sell.

How do I decide where to invest? Start an ‘investment death-match’ to find the best investments

You can learn a lot about investing by setting up what stock market experts call an ‘investment death-match’ in your portfolio. In such a setup, your hand-picked investments compete with each other to produce the best return and rack up the biggest balance.

It starts off by investing equal amounts of money in several investment funds at the same time. This makes it easy to monitor how your investments are performing relative to each other simply by glancing at the fund balances.

While you could pick funds from the same investment category, there is more to be learned by selecting funds from a variety of categories. Plus, you will build a more diversified portfolio if you choose a variety of funds, reducing your risk in case one investment sector falters.

Some of the key criteria to consider when selecting funds are:

• Investment objective: Do you want an aggressive growth fund that takes higher risks to seek higher returns, or would you rather have a more conservative fund that will be more likely to protect your investment?

• Active vs. passive management: Do you want a fund with a fund manager making trades to try to maximise returns, or a passive fund that simply tracks a segment of the market?

• Fees (expense ratio): Funds with lower fees are best for maximising the growth of your investment over time, but some investment types are more complex and tend to have higher fees. Actively managed funds have higher fees than passive funds and index funds.

• Performance record (return): While past performance does not predict future results, most investors tend to select funds with returns that have performed well compared to similar funds over the past one to five years.

• Management team tenure: Some investors prefer funds that have had a consistent management team for a number of years.

Invest exactly equal amounts in each fund to which fares better

With your investment funds picked out, the next step is to invest exactly equal amounts in each one. For example, for a Dh2,000 investment with four funds in your death-match, put exactly Dh500 in each fund to start off the competition.

The reason for putting the exact same amount in several investments on the same day is to make it easy to compare the performance of your funds simply by checking the fund balances at any time.

You don't need to keep track of anything or calculate rate of return to evaluate their performance. Whichever fund has the biggest balance is winning.

Watching your fund choices fight it out to see which will perform the best. This format makes it effortless to see which investment are performing well simply by checking in on the fund balances.

Over time, some of your investments will perform better than others. You might decide to leave the best performing funds in place and start a new match using funds from investments that are not performing as well.

Bottomline?

While it may seem that putting your money in a savings account is an easier option, it probably won’t grow much over time, and inflation and account fees can eat away at the value of your money. Investing, on the other hand, offers a way to grow your savings for some of life’s biggest milestones.

Investing can play a crucial part in securing your goals. It may provide the boost to your savings that allows you to fulfill dreams like buying a car, travelling, starting that dream project or even purchasing a home. It could also mean being able finance your retirement later in life.

Once you get started, you’ll have a better sense of yourself as an investor. How much risk are you willing to take? Are you interested in specific sectors, geographic regions or mandates? How interested are you in the process, and how much time do you want to spend on it?

As you learn and become more confident, you may want to invest more or try different types of investments.