Lately, I received an email from a subscriber of DividendVault.com. In the email, it revealed the subscriber’s scepticism of investing due to fear of losing money. 

Personally, I believe that this fear is a valid concern for many people. If we think about it, many financial decisions that we make today could be attributable and driven by the fear of losing money. The positives include achieving a higher rate of savings, conservative investing, purchasing of life and medical insurance, and estate planning. However, the negatives include cash hoarding, being a miser or a calculative person, and even being victimised by scammers. 

So, this fear is to be acknowledged and I would like to address this in writing. 

Here, I would write it in the context of stock investing. In this write-up, I’ll share my personal experience on this so that you can decide how you like to handle it if you personally are afraid of incurring losses from investing. 


#1: What is the Root Cause for This Fear? 

Here is my story:  

When I was a schoolboy, my father bought shares and their prices tanked in the Asian Financial Crisis in 1997-98. 

Although his loss was not substantial, my father experienced pain and dejection from it. This emotion had permeated throughout the family and it developed in me a sense of belief that investing is risky and you could lose money from it. So, my fear of losing money is derived from my father’s bad experience of incurring losses in the stock market. 

I believe your story and life experiences would be different from mine. Hence, if you have this fear, I think it is helpful for you to find out your root cause for it. Is it due to any particular incident? Or, is it due to a long-term conditioning, which had caused you to cohere with this fear of losing money? 


#2: Embrace This Fear When Investing 

Yes, I’m not asking you to get rid of this fear. 

Instead, if you have this fear, embrace it. You could turn this fear into an edge in investing. This fear can be an invaluable asset if it keeps you humble, grounded, and teachable on sound investment principles. Today, most successful investors remain successful because they have this fear and they know how to manage it. They become better investors because of their fear of losing money. 

In contrast, I believe it is a bigger problem to have one who does not fear losing money. This is because firstly, it shows that the person might adopt a belief that he or she is financially invincible. Secondly, it might indicate that the person has an issue in understanding the value of money. 

So, I think the issue is not about having the fear of losing money. 

Rather, it is about how you deal with it and if you can make the best use of it. 


#3: Take Baby Steps 

For me, I have two choices in dealing with the fear of losing money. 

The first is to avoid investing altogether. It is like not taking lessons on driving to eradicate the risk of a road collision when driving. 

The second is to learn how to invest, managing this fear with education. For me personally, I started my journey with investment books. From them, I learnt the differences between the wealthy and myself when it comes to investments. I’ve recognised that the wealthy has a different way of thinking and as such, I would need to choose to either retain my existing beliefs or to adopt theirs. 

Obviously, I chose the latter, replacing my old beliefs with new ones. 

Then, I continued on by learning how to identify fundamentally solid stocks and do stock valuation. This involves reading financial statements and knowing how to calculate valuation ratios. Then, I make it a habit to read financial statements and compute valuation ratios on a regular basis. This enables me to master and sharpen my craft of assessing stock investment deals over time. 

Yes, it was a lot of studying. But at that time, I had yet to buy a single stock. 


#4: Build a Prototype Portfolio 

Over time, I crafted a simple investment plan that consists of: 


1. Objectives

At that time, my investment objectives include: 

a. Build a RM 10,000 prototype investment portfolio. 
b. Aim to generate at least 4% per annum in dividend yields. 


2. System

To support my investment objectives, I would: 

a. Build a watch list of fundamentally solid stocks. 
b. A stock’s fundamental strength is measured based on its profit consistency. 
c. Do stock valuation. Consider buying if dividend yield >4% per annum. 
d. Also, consider buying if dividend yield > long-term averages.

While the objectives are to earn dividends and attain capital gains, I believe it is important to note that the ultimate prizes here are ‘Education and Experiences’ that would serve me well in my future investments. 


#5: Dealing with Investment Losses 

As I look back, although I started with sound principles and an investment plan, I bought stocks that had fallen in prices. Some were mistakes and I sold them to cut losses. But, there are some which I still continue to hold onto them as these stocks remain income-productive and forward-looking. 

Ironically, I’m actually quite thankful for my mistakes and capital losses incurred from my investment activities. 

From them, I become an avid student of asset allocation, portfolio construction and emotional handling. 

These additional skill sets had allowed me to manage a bigger portfolio while at the same time, keep me rooted and grounded. Imagine me, not incurring losses from all my stock buys. I would be overconfident, thinking that I’m a genius that could do no wrong in the stock market. That is very dangerous. 

Hence, I would say that at the initial stage of investing, investment losses would be a blessing in disguise, if you know how to gain invaluable lessons from them. 

Conclusion

All in all, I believe the fear of losing money can be an asset to investors. The key issue is not having the fear itself but on how you choose to deal with it. You can choose to avoid it altogether or decide to take baby steps to overcome it. If you choose to overcome it, I’m sure you would experience a freedom that is so long lasting which can only be derived from possessing the skills of investing.

If you wish to learn more on the art of stock investing, here’s a free training you can attend: 

Link: How to Build a Stock Portfolio that Pays Increasing Dividends?


Ian Tai
Ian Tai

Financial Content Machine. Dividend Investor. Produced 500+ Financial Articles featured in KCLau.com in Malaysia and the Fifth Person, Value Invest Asia, and Small Cap Asia in Singapore. Regular Host and Presenter of a Weekly Financial Webinar with KCLau.com. Co-Founded DividendVault.com, an online membership site that empowers retail investors to build a stock portfolio that pays rising dividends year after year in Malaysia and Singapore.

Leave a Reply

Your email address will not be published.