Tips on overcoming analysis paralysis in investments

investment risks

Many people face analysis paralysis when making decisions. Do you know what the term means?

According to Healthline, analysis paralysis is a type of overthinking which results in a neverending loop of “what if this, what if that” scenarios.

Vicki Botnick, a therapist from California, shares that our decision-making process usually involves a list of options. As we progress, we begin narrowing this list down, removing choices that are unfeasible. But a person with analysis paralysis will often find themselves trapped.

“They feel ever-expanding, endless, and all equally probable,” she adds.

What is analysis paralysis in investments?
a stressed man in front of a laptop

Image Credits: esquireme.com

Putting things into perspective in the financial realm, analysis paralysis makes perfect sense too. In this case, it refers to a situation where you overanalyse investments so much that your ultimate decision becomes paralysed. You end up freezing and are not able to make a move.

Sounds familiar? Do you find yourself not acting on the plan you have made after all those time spent in planning? If you are stuck on making a decision, then it is about time you stop being in a state of analysis paralysis.

Investing is not that difficult if you’ve done your due research. The only thing you probably need right now is the courage to jump in and start! While it’s not guaranteed that you will make money or succeed, take heart if you have a promising investment strategy.

For those who are still sitting on the fence and waiting for the right moment to take the first step, this article will help you. It’s time to hold back no more and get your head in the game.

#1: Don’t be a perfectionist

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Those undergoing analysis paralysis often end up waiting for the perfect scenario. You need to know that such occasions don’t come by often, and you will only end up wasting time and effort.

For example, some investors were sitting on the fence of Netflix Inc (NASDAQ: NFLX). Yes, while it’s true that they have burnt billions to build the business, with many questioning their business model, 2021 might be their year to becoming self-sustainable.

If you’d trusted your guts with Netflix against what other investors thought, then maybe you wouldn’t have to deal with their recent share price spike of over 10%. Be a perfectionist in investing, and we assure you there will be a slow success.

#2: Narrow down on what matters
priorities

Image Credits: romania2019.eu

Many time, overthinking happens when you don’t have an idea of what to focus on. That is why we’re suggesting that you narrow down on what matters. In other words, prioritise the main objectives regarding your investment strategy.

Let’s say you’re considering between these three:

  • ETFs that track benchmarks
  • Growth technology companies
  • Value consumer discretionary companies

Rather than going with all at one go, it would be wise to start investing with just one or two to get your engine moving.

This perfectly leads us to the next point.

#3: Scale as you go

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Whenever you are thinking about investing, try to start with a small amount. Don’t get fooled by “experts” who advise you to go big or go home.

So, what is the right amount to start with? We think a few hundred dollars is an ideal sum if you’re new to the venture. Once you’re comfortable dealing with the market fluctuations, you can gradually increase the stakes with higher-risk investments.

Starting small is a direction that works not just in investments but life in general too. This is especially true if you’re entering as a greenhorn.

#4: Cut out neighbouring negativity
two-business-people-having-serious-discussion-in-the-office

Image Credits: The Balance Careers

It also pays to not dwell too much into the negative news about losing your money.

The main point here is that if you have a sound strategy, then all is well. You don’t need to listen to friends or neighbours who are discouraging your idea of investing money in the stock market.

While other people’s pitfalls are good to know, shut it out if you know it will only hold you back. Ultimately, it’s your money you’re playing with, and you possess the key to unlocking the door of investments.

#5: Welcome a little impulsivity

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Don’t get us wrong when we say to welcome a little impulsivity. We assume that you’ve spent a considerable amount of time crafting a solid investment strategy. If so, then maybe what you need is that little nudge of impulsivity to get started.

Research done by automated investment firm Stashaway revealed that impulsive investors who withdrew their money during a market correction lost about 2.2% on average. That’s why we want to reiterate that hasty investments will do you no good in a general sense.

Please don’t take this piece of advice out of context.

Final thoughts

The stock market will not stop for you. As Professor Karyl Leggio of Loyola University Maryland rightly points out, “The reality is you aren’t able to time the market. Over time, you miss more opportunities than you save by trying to time the market.”

Continue letting analysis paralysis grab hold of you, and you will be missing out on several golden investment chances. Recognise that you don’t have to be a perfectionist to begin. Focus on what matters, start small, and don’t get buried in negativity.

Take that little spontaneous step forward, and good luck!

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5 Ways to Make Money Like Singapore Billionaire Peter Lim

Peter Lim

Peter Lim is one of Singapore’s best known billionaires. Besides owning the image of Cristiano Ronaldo, the man is famed for his candid sharing and no nonsense remarks. Here’s some of the things we can pick up from him, even if we’re not high flying stock traders:

1. It’s Easier to Build than to Trade

“It’s very difficult to make money from trading. People who get rich are those who buy a company, build it, run it. Most of the traders, they come, they make money, because they have this gambling instinct. They take the money and spend it. The minute they lose money, they got no money to pay up.”

SG Landscape

For those of you into equities, it’s a sober comment on stock trading. Most people won’t get rich doing it. If you have significant capital, maybe it’s better to consider setting up a small side business first – even if you don’t succeed, you’ll at least have a better understanding of how they operate.

For those of you who aren’t into equities, take it as a personal finance lesson. If you want to have a consistent income stream, don’t count on things like the resale value of your flat, or your gold and watch collection. You’ll have a more reliable shot at wealth by building a small side-business (however many attempts it takes).

2. Always be Braced for Losses

When you are holding stocks, if it goes up, don’t be too happy; when it goes down, don’t be too sad. Otherwise, how? Your life will also be fluctuating and you’ll die of a heart attack.
If you really lose sleep over it, maybe the best way is to keep the money in the bank.

What would happen if you bought S$5,000 worth of shares today, and you find they’re worth S$3,000 tomorrow? Would you have the ability to simply move on and chase the next dollar?

If the answer is no, you haven’t got the right mindset to get rich through trading. It is important that you have the psychological resilience to accept losses and gains (which carry their own perils, like overconfidence). It will also impact your career and happiness, if you feel a need to track your stock prices every 30 minutes.

If you don’t have the required sense of calm, then don’t get involved. Get a financial advisor to handle your investments, or keep it in your CPF (you’ll get better returns than from the bank).

3. Think Long Term When Investing

You have to invest with a longer-term mindset. You buy a good stock, leave it there for 10 years. Come 10 years, this dollar can be many, many multiples. I think the trick is really to think long-term. You may not have a lot of money, but you have a lot of time. The minimum length of my investments are five to six years, if not 10 to 12 years.

This is somewhat related to point 1. If you’re eager to trade and go for short term profits, you might get rich – but you’re making it much harder to do so. Remember, every trade requires two correct decisions: when to buy, and when to sell. Even if you get one right, you are likely to get the other one wrong.

Hour Glass

For those of you who aren’t investing, this should be a call for you to start. Even a small amount of money, invested over 10 or 15 years in a reliable asset, can amount to significant sums.
If you invest just S$200 a month, at a return of 5% (achievable with most index funds and insurance policies), you would have over S$59,000 at the end of 15 years.

4. Don’t Just Work, Pay Attention to How Your Company is Run

Mr. Lim didn’t actually get a huge head start. Some of his early jobs were waiter, cook, and taxi driver. It was only much later that he became a stockbroker. During his rise, Mr. Lim learned a lot from the fast food chain Red Rooster, where he worked as a cook. Systems, management processes, logistics, accounting, etc. are all instrumental if you want to understand how well a business runs, and will come in useful when you want to invest or run your own.

So rather than just doing your job, poke your nose around. Find out how your company’s business model works, where it fails and succeeds, and which are the skills critical to its running.

5. It’s About Making a Good Deal, not a Good Sale

You make money when you buy, NOT when you sell.

Value investors already know this, but it’s worth a reminder. Rather than buy something and hope it grows in value, buy it cheaper and wait for it to return to its usual price. We especially love this one, because it’s so applicable in personal finance – taking the time to look for a better deal is the surest way to “make” money. Whether you’re buying a second hand car, or buying a melon at the supermarket.

One way to save money is to pay with a cashback credit card, which gives you a small discount on your purchases when you meet a minimum purchase amount. As long as your bill is paid in full each month, you always avoid paying full price. SingSaver.com.sg has a list of good cashback cards to get you started.

(This article is brought to you by SingSaver.com.sg)

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