Buying your first parcel of shares can seem daunting. So if you’re feeling a bit nervous as you prepare to click the “buy” button, know that you’re far from alone.
How do I know this? I know because I was nervous myself when I started out on my investing journey. But I was convinced that investing in shares would be good for my long-term financial prospects. So I took the plunge, and I’m glad I did.
However, during my investing journey I’ve learned quite a few things that have helped me become a better, more confident investor. I believe the following three things could help you calm your nerves and avoid making any rash decisions as you prepare to buy your first shares.
Decide how much to invest
You’ve worked and saved hard for your money, so you don’t want to gamble with it. That means that you need work out how much of it you are willing to invest.
There are two primary ways you could go about this. The first option is to back into how much to invest. This works well if you have a particular financial goal in mind. For instance, if you’re investing primarily for retirement, you can work out how much money you’ll need for a comfortable retirement, then work backwards to calculate how much you need to save per month to get there. You can use the same basic process if you’re saving to make a big purchase, like a home.
Running through the particulars of the calculations is beyond the scope of this article, but there are online calculators that can help with this, or you can tackle it with a spreadsheet.
The other option is that you can use your budget to help you figure out how much you can afford to invest. Consider what you need for essential living expenses such as mortgage/rent payments, food, transport and utility bills. With the money that’s left, you can build up your funds for investing.
If you can’t set aside a lot of money every month, it may mean that you only invest three or four times a year, but that’s ok. Slow and steady wins the race. It will also give you time to research the companies that you’d like to invest in.
By taking the time to understand what money you have available to invest, and making sure that it’s not money that you’ll need in the next few years, you may find that it’s already a bit less nerve-wracking to make that first share investment.
Research the companies that you’re investing in
Investing is the most daunting when it feels like you’re throwing your money into a black hole. That’s why doing research on the companies that you’re investing in can be so beneficial. Not only might that help you notch better investing returns, but it can also make you feel more comfortable about your share investments.
But how exactly do you go about researching a company? This is another question that could fill a book. But to get you started, here are three questions that I like to ask each time I’m researching a company myself:
- Is it profitable? Although there are investors that like the high risk of high-flying, but unprofitable companies, I like to invest in companies that are making money, and therefore, profitable.
- Do I trust the company’s leadership? Before I put my hard-earned money at risk, I like to look for a leadership team that I think acts in an upright, trustworthy manner. If a company is plagued by scandals, it’s not an investment for me.
- What do the experts say? Be careful here, because experts can be wrong, and we don’t want to be lemmings. However, I accept that I don’t know everything, so I like to read lots of different viewpoints on a company before I invest. In the end, I make my own investing decisions, but if many experts think a company is poorly positioned, I take that very seriously.
There’s a lot more research that you can do, but if you’re starting from square one, if you dig in with just these three questions, I’ll bet you’ll feel a lot more confident once you’re done. At the end of the day, nobody’s going to care more about your money than you. So you don’t want to blindly rush into an investment decision.
Invest for the long term, not for quick gains
If you ask me, investing is a long-term game. My experience has been that people who think they can make a quick buck inevitably come unstuck.
The problem with investing for short-term gains is that as you look at share-market returns over increasingly shorter periods of time, the probability of ending up with a profit or a loss starts to approach 50/50. In other words, your “investing” starts to look a lot more like flipping a coin.
On the other hand, as you start to look at increasingly longer periods of time, the probability of your investments ending up with a profit, tends to increase. A good example of this is the FTSE 100 in the wake of the Global Financial Crisis. Although that was one of the worst share-market crashes in memory, the FTSE is trading higher today than it was at the peak of the market, right before the crash.
By having, and keeping, a long-term perspective as you invest, you may find yourself with far fewer investing-related jitters. That’s because you’ll know that you’re investing with a strategy that has worked well, and led to a better chance for positive investment returns. To be sure, there’s no guarantee that the future will work out like the past, but when I’m given the choice, I prefer to go with what’s worked well for a very long time.
But do keep this in mind: Investing for the long term will only keep your investing nerves at bay if you behave as if you’re investing for the long term. That means that you’re not checking your share prices on a daily or hourly basis. That kind of behaviour not only can lead to rash investing decisions, but can be a major source of needless stress.
Takeaway
So yes, making that very first investment in shares can be a bit daunting. But if you’re reading this, I assume that you’ve read up on share investing and have seen that many investors have enjoyed attractive investment returns by making smart, sensible investments in shares.
If you’re looking to get over that final hurdle and actually press the “buy” button to purchase your first shares, I think the tips I’ve shared here could help. Namely, if you’ve:
- worked out how much you can afford to invest;
- done your research to understand the companies you’re planning on investing in; and
- committed yourself to investing for the long term…
then I think you’ll find those nerves calming down a good bit as you prepare to embark on your own investing journey.
