The world of investing can be very intimidating for persons who know nothing about it. Investing may seem like a pursuit for the wealthy elite or financial power-brokers, and not a money-multiplication activity that can be practised by ordinary people with relatively limited means.

Unfortunately, too many persons allow a lack of knowledge and an abundance of fear to prevent them from generating income and building wealth from investing. If you avoid or disregard this important financial skill, you may actually miss out on achieving your long-term money goals.

Do your research

If you have never bothered to invest because of ignorance, you first need to learn more about the process. The Internet provides myriad outlets which you can use to research investments. Just put “investing guide for beginners” in your search engine and it will return thousands of websites.

While some information online might be more suitable for persons overseas, you can become more knowledgeable about local issues by watching money shows on TV and reading the financial papers. You can also attend investing seminars and forums that take place regularly in Jamaica.

As some of the investing terminology can be technical, it’s best to seek guidance from expert investment professionals who can help you to better understand the process. A licensed advisor can also assist you to determine how investing can help you to accomplish your money goals.

Understand the risks

Some people are afraid to invest because a positive outcome is not always guaranteed. When you invest, you want to be able to get back the funds you contributed, and earn more money in the process. However, there is the possibility that you could get different results than you anticipated.

With investing, there is a risk that you may not gain the amount of profit that you expected, or that you may not receive any profit at all. It is also possible that you may not be able to get back your initial investment when you want to, or that you could lose some, or all, of your money.

Different investments come with varying levels of risk, so it’s important to find out from an advisor about the possible negative outcomes from making an investment. Then you need to assess if you are financially and psychologically prepared to absorb these risks before proceeding.

Start out small

Don’t be afraid of making the leap into investing, just because of the possible risks involved. If you want to achieve more in life, you have to be willing to step out of your comfort zone and take on new challenges. If you want to create more wealth, you have to learn to play the investing game.

It’s difficult to become a seasoned investor just by studying the theoretical aspects of investing and neglecting the practical applications. Like any other skill, you need to gain experience to become proficient; as they say, you have to get into the water if you want to learn how to swim.

After researching different investments and their associated risks, you can start by investing a small amount of funds into options that suit your current goals, with the guidance of an advisor. Over time, you can increase your investment capital without feeling overly fearful of the risks.

Keep abreast of changes

Investing is not a static process because the financial world is dynamic and various factors can affect the performance of your investments. One of the reasons why some people feel nervous about investing is the fact that economic uncertainties can negatively influence all their projections.

In Jamaica, we observed how the recent debt exchange policies changed the interest rates on government paper investments and the maturity dates in which investors expected to receive their principal payments. This development seriously compromised the financial plans of many people.

While there will be trends and events that could adversely affect your portfolio, if you are actively monitoring your investments, you can make adjustments wherever necessary to keep on track. Keep updated by reading investment news and having periodic discussions with your advisor.

Don’t get overconfident

As you develop your expertise with the investing process and you begin to show positive returns for your efforts, it may be tempting to believe that you will always profit from your investments. This overconfidence could lead you to become careless when making investment decisions.

For some people, investing can be as addictive as gambling, as they get hooked on winning when their investments are performing well. They often forget the old adage, “What goes up must come down,” and throw caution to the wind by investing more than they can really afford to lose.

Always practise the basic principles of smart investing — understand how an investment works, be aware of the risks, invest in line with your goals, and monitor the performance over time — and you will avoid the pitfalls of persons who became imprudent with their investments.

Copyright © 2013 Cherryl Hanson Simpson. No reproduction without written consent.

Originally published in The Daily Observer, September 26, 2013

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Cherryl is a money coach and business mentor, and founder of Financially S.M.A.R.T. Services. See more of her work at www.entrepreneursinjamaica.com and www.financiallysmart.org. Contact Cherryl