Whether it’s putting time into personal growth, making big equipment purchases, or wanting to expand your company, the fear of losing time and money can have a debilitating grip on our decision making.
We see this grip of fear the most with investment banking - trading stocks and managing millions in portfolios - and that’s why it’s a great learning tool for understanding the best times (and worst ways) to make smart investment moves.
After the 2007-2009 recession, people (and their portfolio’s) were hurting. In 2010, inflation ran at 1.5%; in 2011, 3.0%. So, as long as the rate of inflation exceeded your investment return, you were losing money.
After the Great Recession, many were terrified of making new investments, buying risky stocks, or putting money into expanding their business. And it all stemmed from the fear of losing more money.
Enter A New Mindset
It is perfectly natural to be fearful. When fear comes upon you, embrace it, watch what is happening to your physical body, how it tightens. Watch what is happening to your thoughts, how they turn cloudy and negative. And wait for the feeling of fear to pass, because it always passes. And once fear passes, only then may you make wise decisions.
Getting Out Of The Groove
Here’s the thing about fear: it stops us from getting to that really groovy place where we want to dance and sing and shake it all out because we feel financially independent and free!
We are fighting this primitive human brain.
As entrepreneurs, we don’t have a whole lot of constructive use for fear. Rather, fear is a destructive emotional anchor, driving us to stuff money under the proverbial mattress, miss out on investment opportunities, let cash sit in a bank savings account earning next to nothing, or invest in ultra-safe-barely-pays-any-interest federal government bonds. All of which are surefire ways to NOT walk the path toward financial freedom.
No one enjoys lingering in a state of fear or high anxiety. Still, it happens to all of us because our minds are wired this way, fear being an evolutionary mechanism designed to:
(1) signal danger, threat or conflict, and then
(2) activate an adaptive response.
Okay, so we are fighting this primitive human brain. But for the purpose of retiring early AND not running out of money before reaching our final resting place, isn’t it possible for entrepreneurs to flip the fear off switch?
‘Hey, smart guy, look around. The world is crazier than ever; the reasons for being fearful are endless!’
I know, I get it, you don’t have to look too hard to find one geopolitical crisis or another that makes you want to stockpile supplies and hide out in a desert bunker. On top of this, there are your personal financial circumstances, be it unexpected expenses, or the many other uncertainties that hold you back from contributing more to an investment mindset.
But the thing is, running away from financial fear is not the solution to being the CEO of your own show. In fact, it’s the exact opposite. If you let fear stop you from thinking “investing”, then financial independence will remain a pipe dream.
Risk is easily acceptable when it seems there is little chance of loss.
Shift Your Perspective
To manage fear, to build wealth, and reframe your take on events we look at the other side of the coin. The risk of gain, especially for long-term investment thinkers, is less risky than the fear of loss.
For many, risk is easily acceptable when it seems there is little chance of loss. So … when does the stock market offer such conditions as an example of when to invest? Well, when stock prices are going up, positive vibes fill the media, and fear has been relegated to the backseat. But, but, but … this is the exact wrong time to invest!
You want to invest when fear is in the air, when stock values are depressed and ON SALE.
But this is not what happens for most investors, or entrepreneurs. Instead, time and time and time again, people do the exact opposite of what should be done; they buy high (when fear has receded) and sell low (when fear is ascending).
Learn to address your fears and maximize your investment mindset.
Your path to financial freedom would be that much shorter if you could shift perspective, and see depressed prices as actually presenting less risk, and potentially greater reward.
Easier Said, But Definitely Do-Able
So what can we learn from investment banking that can be applied to entrepreneurship? How can we make use of investment rules in our business life?
Here’s our guide to what needs to be done to address your fears, and maximize investment mindset:
1. Diversify. You’ve heard it so often that maybe you tune it out: don’t put all your eggs in one basket. Because a diverse pool of assets goes a long way to reducing fears, minimizing risk, and lessening major moves in portfolio value.
Entrepreneur Mindset: What kind of risk for you gives rise to fear? Market performance, innovation by competition, interest rates, customer loyalty, and product delivery. To alleviate fear (and ulcers), hold onto what you’re known for. If you think there’s gaps customers may want, fill those with innovations. If the competition is getting stiffer in a certain market, increase your investment in a different or new market.
2. Balance and ReBalance. If you were a wise investor who had an investment plan of 60% stocks, 30% bonds and 10% cash, and your stocks increased in value to make up 70% of your portfolio, then its time to rebalance, to sell 10% of the stock holdings (sell the winners; and when you sell at the ‘high’ price, it sure feels good) and allocate the proceeds to bonds and/or cash.
Entrepreneur Mindset: How would you do this in business? If you made 60% sales with Product A, 30% Product B and 10% Product C, and your Product A began selling like hot-cakes, then it’s time to rebalance the revenues into new innovations, markets, or support important yet less-sales-generating products.
Because rebalancing reduces risk, reduces those situations where you feel fearful of one primary product floating your business.
3. Pay Less Attention. The stock market is a roller coaster. And the ride makes a whole lot of folks queasy. But by no means does that mean you should jump off. Instead, tweak your behavior: stop checking prices every day or even every week. Because it’s dangerous for your health. When you're hyper-focused on daily stock prices, you become more and more emotionally affected by both small and large movements.
Entrepreneur Mindset: The market you are in can also be a roller coaster and drain you emotionally when you’re micro-focused on the latest trends and the moves of your competitors. And worse, this may cause you to forget your long-term goals and make poor decisions based on short-term swings by things outside of your control.
4. Keep Costs Down. Managing costs contributes to minimizing financial risk, i.e., the lower your investment costs, the more money in your pocket.This may mean choosing low cost index funds; using the services of a Robo-Advisor; managing your own investments with a discount broker; or negotiating lower fees with a financial adviser.
Entrepreneur Mindset: We’ve been talking about not being fearful to make investments in your business, and now we’re saying keep your costs down. So what’s the difference? Making an investment for growth in your business doesn’t mean signing blank cheques, hiring a fleet of consultants, and wanting the newest, shiniest object for your business. It does mean being smart with your money. When you can get the same service or product at a reduced price (or with more value offered), then choose to be less financially risky.
5. Recognize Noise For What It Is. Media knows that we read what we connect with, and most often that connection is on an emotional level.
When stories lean negative, this may affect our decision-making, and not necessarily for the better. So don’t let media stories suck you in and throw your well thought out plan off course. Because your financial plans, your financial future, should not be adjusted based on media stories or even what you discuss with friends. Instead, your plans should be based exclusively on your current needs, short, medium and long-term goals, and tolerance for risk.
Entrepreneur Mindset: Whether the negative stories come from traditional media or social media, don’t let the stories suck you in and throw your well thought out plan off course. Marketing is one of the more susceptible functions that swing with the latest trend, technology tool, and shiny object. Understand how to turn down the noise and base your marketing plans, project plans, and financial goals for your business on your purpose and vision.
Sure, we’re all susceptible to fear. But when you’re able to harness that fear, you sure do stack the odds in your favor that financial independence will be reached according to your plan.
I enjoyed co-writing this article with Ken Finkelstein. Ken is a fabulous writer on financial matters and you can check him out at his Buddha Money blog. And to put a smile on your face, you simply must find and click on his BuddhaMoneyLama (namaste) button.