Getting Over Investor Paralysis
Investor paralysis can be caused by a number of factors, but the most common is fear. In my recent book The Journey To Wealth, we discuss this subject and ways to improve this type of behavior.
We like to say that for many new investors, making that first investment is like jumping out of a plane –it looks and feels risky. This perspective is usually a function of lack of experience and education. For the novice investor the answer to managing this fear-related paralysis lies in education, education, education! It’s also helpful to make that first investment a very small one, to minimize the feelings of risk and loss.
For more experienced investors, investment paralysis can be caused by the fear of loss, but often it’s something even more precious – a dent in one’s ego! It is human nature to not want to be wrong – and when we compound that with a loss of money – we have all the ingredients for not feeling so good about oneself! This type of paralysis is best addressed by creating a disciplined process of investing, coupled with some risk management tools. The investor who over analyzes or delays decisions usually does so due to a lack of a disciplined process and the fear of losing significant sums of money. Every investor should follow tried and true investment guidelines and invest regularly. Have some rules for saving and invest on a monthly basis. A well thought through investment process, consistently applied, can alleviate this paralysis. Couple this with a process for managing downside risk, helps the individual to invest in a more timely fashion without the drama. In the book, we discuss the use of stop loss orders as one of a number of tools to manage the down side risk of investing. Let’s face if it – if we know how much we are willing to lose and can set a boundary on that number, it makes pulling the trigger that much easier.