Being fearful of placing your hand on a hot stove or jumping out of an airplane without a parachute is fear inducing and triggers your sense of self-preservation. Then there’s the fear of having too much information which can lead to analysis paralysis. The data which is suppose to help you make an informed decision is the very reason you are NOT.
Back when I worked at Dolphin Marketing, the moment I became eligible for the 401k program I immediately enrolled, contributing 5% of my $27,500 salary. The company matched 100% of my contributions up to 3% of my salary and 50% of contributions after 3% but only up to 5% (the next 2%). Not sure what fund to choose from I decided to leave my contribution in a money market account. Since this account was labeled “guaranteed” and the other funds were not, the “guaranteed” must be better than “non-guaranteed” right?
Once I left Dolphin Marketing, my contributions, company match and profit sharing totaled just shy of $10,000. I rolled the balance over to another money market fund with Vanguard. My plan was to vigorously research funds before investing. I then researched…researched…and researched. Each time I went to purchase one of the funds on my list, I decided to wait because “it could be too risky”, “what if there’s a better fund?”, “what if I lose all my money?”. I had become a victim of analysis paralysis. I had too much information. I was the person who just got their driver’s license, eager to drive but I wanted to make sure all the traffic lights were green BEFORE starting the car.
Thirteen months later, I still had the funds in a money market account which had provided a lackluster “return”. Looking at that statement I knew I had to do something. My funds were sitting on the bench and desperately needed to get into the game. I previously hesitated because I feared what I may lose without even considering what I had to gain. At the same time, not taking a risk was my biggest risk. The reason I was paralyzed to not make a decision is because while I had done the research, I did not know anyone investing. None of my peers were investing and my parents suggestion was to put all my money in a savings account and get a job with a pension.
Vanguard had a fund list of 100+ funds and I was unsure where to start. Using the filters I narrowed the selection to large cap mutual funds and a couple of balanced funds. Both had a mix of blue chip U.S. companies and bonds. I narrowed my list down to a couple funds and I invested a portion of my (almost) $10,000 into each. After the initial purchase I checked the balance often looking for affirmation that I had made the right decision. While I was nervous at first, the quarterly statements provided the mental insurance I needed as the value of my investments continued to rise. The stock returns were better than the money market returns. There’s a reason money market funds are guaranteed: if you use them as your long term investment strategy you are guaranteed to miss out on significant returns elsewhere.
What helped me overcome this fear:
- I had done my research, looked at each funds track record and most of the funds I invested in had been open for at least 10 (preferably more) years.
- While savings accounts were paying 3-5% interest, mutual funds were returning north of 9%. The economist in me winced at the opportunity cost of “playing it safe”.
- Even if there was some sort of unexpected collapse and I lost everything, being young I would have the time to retool and rebuild. Secondly, if things got so dire and the economy crumbled similar to the Great Depression, I would have bigger things to worry about than my retirement account.
- What if? What if I l picked the wrong fund? What if there were other fees I had failed to realize? These were a few of the whatifs? I had running through my mind. Then there was one question that made things clearer: What if I never invest? Yes, no one sets out to lose but you do have to be in the game to win.
What type of funds are you investing in? Why?