Why investing should be boring
Investing should be as boring as watching paint dry.
We’ve all seen the headlines where someone goes from relative obscurity to being a millionaire seemingly overnight because of one lucky investment.
‘Get rich fast’ schemes and scams attract people for a reason – we know what we want and we want it NOW.
But that’s not the reality for most investors. In fact, most wealthy people get rich slow.
Even Warren Buffett, one of the world’s most well known and successful investors, who began investing when he was 11 years old, didn’t become a millionaire until he was 30 years old. Read that again. That means he was investing and making money moves consistently for 20 years to get to his first million. And then he didn’t become a billionaire until he was 50.
But those stories don’t get as many clicks…
Here are our 3 tips for how you can make your money grow without putting it all on the line.
- Be in it for the long run
Humans aren’t great at planning for the long-term and for the future. You might think investing for 20 or 30 years to become a millionaire takes too long. But to get the State Pension (currently £10,600 per year in the 2023-2024 tax year), you’ll have to have worked and contributed to your National Insurance record for 35 years.
It’s easy to feel confident when our investments are doing well and we’re in the green. But as soon as the markets start to drop and the numbers in our account go red, we want to cut our losses and may be tempted to sell. This can happen even to the most experienced investors with nerves of steel. But your losses (like your gains) aren’t actually realised until you sell. So if you ride out the headlines, you at least have the chance of seeing your investments recover. Whereas if you sell, you definitely don’t have the chance of seeing your investments recover.
Of course, sometimes selling in a market downturn might be necessary or the right thing to do. It all depends on your personal circumstances and what you’re investing for.
- Diversify. Diversify. Diversify.
People who are new to investing often think that investing is the same as gambling. This is usually from stories of people who have lost everything by betting everything on one stock or maybe cryptocurrency. People looking for excitement may try to ‘beat the market’ by day trading or throwing everything into alternative investments. In doing this they take on too much risk – more than they can handle – and if things don’t go well, they can end up with nothing, or worse, in debt.
This is where diversification and understanding your risk profile comes into play. Index Fund millionaires – people who have become millionaires simply from investing in low-cost index funds – exist for a reason. People who consistently invest in low-cost, diversified funds that track the market regularly outperform day traders and fund managers in the long run. Index funds and Exchange Traded Funds (ETFs) aren’t seen as very exciting, but they’re an excellent way to achieve long-term financial goals like financial independence.
- Automation is your best friend
Money is closely tied to our emotions and our self-worth.
If you’ve ever bought something with the intention of wearing or using it ‘one day when,’ or thinking ‘I’ll be happy when,’ then you’ll know the feeling of spending money being tied to how we feel about ourselves.
We might spend more money when we feel down or sad. We might spend more money in the hope that it will make us a different person, and make us happy. This is where many of us might stumble in our budgeting or when it comes to investing.
We can be our own worst enemy when it comes to our future finances.
This is why paying yourself first by setting aside a certain amount of money to invest each month is so important. Make it automatic by setting up a direct debit into your investing account every payday.
We’ve said it once and we’ll say it again. Investing should be as boring as watching paint dry.
Go get your excitement doing the things that bring you joy instead.
*With investing your capital is at risk. Your investments may go down as well as up, and you may get back less than the amount you invested.