The share market seems filled with opportunity. The idea of investing money to make more money is generally well received by people. Of course there is a chance you could also lose money, though most people never really think about that when stepping into their first share market investment.
For me, I have dabbled a few times in the share market and have decided I am a terrible investor. My appetite for risk is rather small; meaning the first site of a loss scares the hell out of me. I end up monitoring the market daily; looking at how much money I have lost or gained in a single day and normally end up taking a loss to secure the remaining dollars I have invested back into my pockets.
According to experts, this is the wrong way to approach an investment in shares. However after having some time to think this over, I am now doubting whether I am actually a bad investor or simply part of the norm with reasonable concerns over investing my money in the share market.
Here is why;
Most advisors tend to tell you to focus on the long term
Just about every financial institution will tell you to focus on the long term when investing in shares. They will also go on to draw comparisons between someone who invested in shares compared to someone who opted for safer investments (such as term deposits, property or high interest savings accounts).
Though these statistics become compelling to show you that over the long term shares have outperformed cash – it still leaves me worried. Who in their right mind is happy to let their cash go up and down (often drastically) and still act like they aren’t remotely worried?
I see it going up and down daily and think, ‘what if I lost it all?’ – the thought of losing my money or having sleepless nights while it is in the market gets me very concerned. This shows my tolerance to risk is low, ‘each to their own’ some will say.
The disclaimer in the advice given is contradictory to the above
Now although the statistics provided by advisors show shares as a good long term investment, these statistics are based on past performance.
The disclaimer that you will see in emails from advisors or institutions trying to get you into the market, clearly states: “Past performance is not an indication of future returns”.
This means that the market could go anywhere. It in all honesty is uncharted territory and just because it performed well or bad in the past – has no actually ground to show that history will repeat itself. Instead history is written as we go when it comes to investing in shares.
My risk tolerance indicates I should not be investing in shares
My tolerance for risk is clearly low. I hate the idea of losing money, even if it is temporarily. This is likely due to the fact that most of my money I have to invest, I will likely need at some point and cannot afford to lock it into the market for a 10-15 year period.
Who is to say that the boom we saw in the early 90’s on the stock market will happen again? These past returns drive people in the present to invest – which is a bad basis for making decisions.
So unless you have research and ideas about the returns of a company you wish to invest in, the mum and dad investors tend to be led by past performance which may or may not yield a good result.
So am I really a bad investor? Or am I just a realist with a low threshold to risk. I say the latter if I may say so myself.