How to Overcome Extreme Risk Aversion?
I'm a college student and there's this one stock in particular I've had my eyes on for a while. I feel pretty good about it, and I want to invest in it - the problem is I'm a college student, I'm new at investing and I hate losing money and the fear that the stock price will go down would kill me. So how have you guys overcame an aversion to risk and losing money?
Risk appetite and the ability to take risk are two different things.
Will it going down “kill you” because you need the capital?
No, like I said I'm in college so I'm not going to be out on the streets. But it would really p*ss me off, which is where my struggle is.
If you are that emotional about losing money, investing is not a game you should play. Think of what you would do if Feb 8, 2018 happened and you've just bought some shares. I would suggest hedging or diversify if you are that afraid of losing money. I lost $10K trading options when I was younger, I just smashed my stuff around for a couple of minutes and slowly invest my way back. It's completely fine.
Make more of it.
If you're afraid of losing money as a college kid but still want to set some aside, put it in bonds or one of those 2% savings accounts until you get a job. Or just put it in VTSAX and forget about it until you retire.
you're really that confident in VTSAX? what do you think the value will be when you retire?
You invest in index funds because you're not confident in anything in particular, other than the general idea that, given a long enough horizon, US equities have returned ~7% annually.
Not as the only index fund (gotta put some domestic bonds, international bonds, and international equities in there and then slowly switch more money to bonds as you age), but yes.
For a couple reasons, really.
The expense ratio is very low
People at Vanguard are a lot more knowledgeable about the stock market than I am
The historic returns are terrific for what it is - a low long-term risk, low thought, low effort place to save for retirement. I invest in real estate, my day job, for big returns, and I'll play around buying individual stocks from time to time, more as a form of gambling than investing, but Vanguard funds are perfect for 401(k) matches and a set amount of money set aside every two weeks.
Investing some expendable $ in a stock is far from "Extreme Risk", which leads me to believe that you've lived a rather cushy and/or conservative life up to this point.
I'm a believe that an appetite for risk is something ingrained in people from an early age. I also believe that risk-taking (to an extent) can be a learned through persistent day-to-day micro efforts.
Step 1. Get comfortable being uncomfortable Meet new people, go to an event you normally wouldn't go to, force yourself to try new things. If at any point you're not comfortable take a breath and remember that's why you're there in the first place.
Step 2. Up the Ante After putting yourself in normally uncomfortable situations, you'll eventually become desensitized to them. You're progressing. Now you need to turn the risk level up a notch. Find new things that scare the shit out of you and do them. Look fear in the eye as you slap it in the face.
Step 3. Research and Execute Now that you're ok with uncertainty and being uncomfortable it's time to make your trade(s). Do your research, write down your investment thesis, have an exit strategy for when/how to take gains off the table, and set a stop loss to protect your downside.
You can (and should) apply this to your trades, your business, your career, your relationships etc. Great life skill to have.
"Life begins at the end of your comfort zone"
Hormone replacement therapy
J.P. Morgan once had a friend who was so worried about his stock holdings that he could not sleep at night. The friend asked, 'What should I do about my stocks?' Morgan replied, 'Sell down to your sleeping point' Every investor must decide the trade-off he or she is willing to make between eating well and sleeping well. High investment rewards can only be achieved at the cost of substantial risk-taking. So what is your sleeping point? Finding the answer to this question is one of the most important investment steps you must take.
-Burton Malkiel
you should only trade/invest in risky things with money that you are willing to lose...and that is some % of your net worth....usually less than 20%
Intentionally blow up your account a few times to get used to the loss.
"Meditation on inevitable death should be performed daily. Every day when one's body and mind are at peace, one should meditate upon being ripped apart by arrows, rifles, spears and swords, being carried away by surging waves, being thrown into the midst of a great fire, being struck by lightning, being shaken to death by a great earthquake, falling from thousand-foot cliffs, dying of disease or committing seppuku at the death of one's master. And every day without fail one should consider himself as dead."
Ok here's what you're going to do. You're going to take that money that you're afraid of losing and put all of it into crypto. $LINK to be exact.
Just invest in an index fund, investing may not be for you from a psychological standpoint. You'll make fine money in an index fund over time
Just send it, you live and you learn
You shouldn't be investing in individual stocks unless you already have a good emergency savings account (a few months of expenses) and you're contributing to tax advantaged retirement accounts (Roth IRA etc.) If you want to allocate some small % of your wealth to individual stocks after that, then go for it. You'll almost certainly be wealthier in the long run by avoiding it and investing in index funds instead.
I used to feel like you. Then I started investing in single stocks I believed in. Basically every trade has worked out so far. There were ups and downs along the way that were hard to be indifferent to, but I found I had the temperament for it.
You need to find out whether you really have an investor’s temperament, and there’s only one way to do that...so start investing.
Share the stock - you'll get some solid analysis on this board (lots of intellectual horsepower here...).
SQ - Square Inc
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