Some people have gotten tired of investing their money because of past failures and wrong decisions. Discouraged by losses brought about by the global financial crises in the past, many have chosen to be too “conservative” that they just leave all their money in savings and time deposit accounts. Or worst, they just keep them under their pillows.
Taking risks again after losing thousands of bucks from failed businesses and investments may not be very easy. You may say you have learned your lesson well and therefore decided not to invest again. However, this is a wrong approach of learning from life’s failures.
Here are three proper ways to learn and move on from all these bad experiences.
Educate Yourself Before (Re-)Investing
Several years ago, I did not know anything about paper assets. I did not know anything much about pooled funds or any other type of investment. Without even doing my research on variable universal life insurance, I invested* my first few savings in it. Not knowing that if I fail to pay the premium on time, the entire amount that I put in will be forfeited. That means I will no longer be covered with the insurance that I paid for.
And so the time came when I could no longer pay the monthly premium. The rest is history. All my savings were gone because of an uneducated decision to buy an expensive life insurance. I should have analyzed first what type of insurance suited my needs and capacity back then.
But don’t get me wrong. I’m not against life insurance. In fact, I would even advice you get a life insurance to protect your family and your assets. Get a variable unit-linked (VUL) insurance in case you have not invested on any paper assets yet, or a term life insurance if you are already investing in the stock market or mutual funds for the long-term. Or whatever really suits you.
Make sure that you purchase your life insurance only from the longest-running, best-performing, and reputable insurance companies in the country. Avoid unknown and untrained insurance brokers.
Never go to a war without studying your strategies. Know thyself and know thy enemy.
Are you planning to invest for your future, your children’s education, or to build your first home? Set your long-term investment goals clearly.
*Life insurance serves as protection to your assets. It is not really classified as an investment but it provides cash to pay for debts and liabilities, taxes, final expenses and other fees without selling assets or borrowing money in case of an individual’s sudden death. It also helps provide for an organized distribution of assets to heirs based on beneficiary designation.
Build Your Emergency Fund
While educating yourself about investment, take time to build your emergency fund.
Do you remember the last time you lost your money in an unfamiliar investment?
I’m assuming that the risks of investing in that instrument were not clearly explained to you by your agent. Or if he did, most probably you were not paying attention to the details or did not have a clue on what he was saying.
You probably were just interested in harvesting the promised high returns.
You should know better this time. Keep at least six months’ worth of your monthly expenses for your emergency fund.
In the event that your next investment falls apart again, you have your emergency fund to back you up. But don’t stop saving for it even when you already established the fund.
You can keep your emergency fund in two separate accounts from two different reputable banks. Put half of that in a regular savings account, and the other half on a short-term time deposit account.
Choose The Right Investment Vehicle
Once you have a firm understanding of the different financial instruments available around you, make a choice on whether you will go for the low-risk paper assets such as government/private bonds, treasury bills, money market, etc. or medium-risk investments such as blue-chip stocks, UITF’s, and mutual funds.
Scatter at least 20% of your monthly income on these investment vehicles with most of it in blue chip stocks. Using the cost-averaging method for your long-term investment, your money will grow over time regardless if the market is down or taking off. Use the power of compounded interest.
For people who experienced family feuds, breakups, depression, or suicidal tendencies, I advise that you do not dip your feet in high-risk investments such as speculative/active stock trading or forex trading. But if you insist, invest only an amount in excess of your funds that you can afford to lose.
Time To Move On
Follow these three major steps then focus on your long-term goals and everything will be fine.
It is true that it is hard to forget the painful past (and you shouldn’t). But instead of looking at it as an obstacle, make use of it as your motivation to learn more and become stronger to achieve what you want in life.
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