Investing is an area where our psychology is truly against us. Our inbuilt human is a terrible investor; just think about some of the drawbacks of being a human:
- We suffer from biases.
- We are emotional.
- We feel fear.
- We suffer from greed.
- We get caught up in herd mentality.
Combine these issues with investment decisions and like many before you, you’ll suffer by ending up with shitty investments, a bad plan of attack, poor results and eventually, you’ll have to settle for worse than you would have otherwise been able to achieve.
The impact of our psychological limitations is even stronger when you’re young and starting out with investing because you also tend to have one other shocker of a trait; you’re more confident than you should be. Because you haven’t learnt the hard lessons, you’re more affected by marketing hype and more likely to react when you shouldn’t.
I’ve seen way too many people that have suffered the consequences of allowing their inner human to drive their investment decisions. They all learnt a very valuable lesson, and they all won’t make the same mistake again. But unfortunately these same people have suffered setbacks that sometimes take years to recover from.
So right now, you’ve got two paths to choose from. The first path will teach you some very valuable lessons through causing you some pain (in some cases a lot of pain). Choose this path and you’ll suffer setbacks and roadblocks that will hurt. You probably have plenty of time on your side, so you’ll likely be able to recover and still be ok. But you won’t reach the same point you would have if you’d got this right from the start.
Follow the second path and you’re making the choice to invest your time and energy early on. This means you have to educate yourself, understand your options and do some initial leg work so you can get your investment strategy right from the start. In fact, you might even have to invest a few bucks to get some professional support. On this path, you’ll build momentum from your very first step, you’ll have managed your risk, and you’ll avoid much of the stress that’s so common with investing. You may not learn the big, hard, painful lessons, but you begin a journey where your understanding of money will steadily grow over time. Assuming you see it through and tame your unhelpful psychological traits, this path will get you to the outcomes you want either faster or easier, or instead you might choose to strive for an even greater financial outcome.
So which will you choose?
I know what my choice would be if I had it again. Unfortunately I too let my inner human steer the ship when I was younger, and suffered some setbacks as a result. Thankfully this was when I was a uni student and didn’t have much money, so my losses were only small and didn’t set me back much. But many other people I’ve met haven’t been so lucky.
Don’t get caught up in the hype. When you have lots of time on your side, you don’t need to chase the next big thing and face the risk involved with this sort of investment. The good news is, smart investing is actually pretty easy.
The most difficult part of a smart investment strategy is resisting the inbuilt psychological drivers that push us all to make bad choices.
You need to understand what these biases and flawed decision making processes are so you can avoid them. Once you know what you’re looking for, things become much easier. You can identify when your thinking is getting in the way of making good decisions, and take action to correct your course. The key is building your understanding.
This will help you to take control, shove your inner human out of the driver’s seat, and make better investment choices.
And if you’re ready to get started now, here’s some of my favourite articles on how to nail the money side of your life, as well as some of my most popular blogs:
- How to buy happiness (TED talk)
- How you’re hardwired to suck at saving
- The psychology of money
- Analysis paralysis is making you poor
- The battle between your present and future self
- How Netflix is making you mediocre
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