Sunday 4th November 2018
I met a friend for a drink on Friday night. My friend had a baby recently, and we often talk about the challenges and joys of parenthood while we enjoy a pint and relax while reflecting on some baby-free time.
I’ve always seen my friend as a real risk taker. He’s travelled to more than 50 countries, he has parachuted out of a plane and is a regular gambler, betting on sports events and has won and lost big over the years.
He mentioned that he had saved up some money that he planned to give his child when she turned 18. I asked him where he was keeping it, and he mentioned he was saving it in the bank. “You could probably do a little more with it than that,” I said. I continued to talk about the power of investing and tried to get him thinking about how he could make that money work a lot harder than just sitting in the bank.
Eventually, I asked him if he would consider taking out €500 of his saved money to use it in an initial investment to just experiment a little. He looked at me and said “I’ve struggled to save this money as it is, I just can’t afford to risk it if something goes wrong”. Even after I tried to tell him I would guarantee any losses, he still wouldn’t budge - I could tell he saw investing as the riskiest thing one could do.
What he failed to see was that by saving money, the true value of that money will be less and less every year. Over the next 18 years, that money will be eaten by inflation - it will be worth a lot less in 18 years’ time than it is today.
In my mind, the riskiest thing he could do is leave that money in a bank account because of the missed opportunity cost. The worst part is, by not investing, he won’t learn anything. So many people can’t even get themselves to a position where they have money to invest - my friend is in a position where he has money that he doesn’t plan to spend for a long time, but he is too scared to invest it.
I reflected on it later that night when I got home. Here was a man who has taken so many risks in his life and is happy to make a bet at the bookies even at the most extreme odds, yet when it comes to investing, a game where the odds are actually in your favour, he wasn’t able to make the first step - even when he had the guidance of an experienced investor to help him.
Investing isn’t scary. Investing is like everything else in life - you just need to start! I often compare investing to flying a plane. I have no flying experience and if someone were to make me fly a plane today, I would find it daunting and I would most likely crash! However, with education, training and a decent teacher, I could learn to fly a plane and I wouldn't find it scary anymore.
The scariest part about investing for most people is just the unknown. The only way you are ever going to find out what investing is really like, is to actually take a step and try it. You will make mistakes - we all do, but in the long run, as long as you learn from those mistakes, you will make it as a successful investor.
The key to being a successful investor is to remove any emotion you have about money. The best investors try to remain emotionless - they don’t panic when things start to go wrong, and they don’t over-celebrate when things go well.
When it comes to investing, at some point you’re going to need to make that first step. The key thing to remember, is that the riskiest thing you can actually do, is not invest at all.