WARNING: This post is sponsored by Endowus, a roboadvisor I use to invest in passive index funds via my CPF (they also let you invest your cash). We previously did a webinar with them about passive investing.
These days, perfectionism is not just glorified. It has been made the norm. We’re taught to never settle, to do ‘all or nothing’.
Now, all this sounds good on paper and on Instagram bios. But in the real world, this has consequences.
Perfectionists also engage in a lot of self-destructive behaviour. They give themselves anxiety, diminish their own achievements and perhaps, most relevant to personal finance – procrastinate.
The full process is like this: Perfectionism, procrastination, paralysis.
And we’ve heard stories of people creating brokerage accounts but not starting for 1, 5, even 10 years simply because they were too afraid their investment journey would be ‘imperfect’.
Now, we are by no means investing gurus, but what we can offer you here are some ways of thinking that will help you take that leap into investing.
Hopefully they’ll untangle and smooth out the mental mess so many of us have built in our heads.
#1 There is no shame in starting small
The perfect investing story, for many non-investors goes something like this:
After working for a few years, they put in $100,000 of savings into one stock. Over the course of one year, it triples in value. $100,000 is now worth $300,000. Sell stock for $200,000 profit.
But in reality, instead of waiting for a nice number like $100,000 or even $10,000 to start investing, it’s okay for your first investment to be a tiny amount like $100 or $500.
The first reason for this is simple:
If you wait to have $100,000 before putting that in the stock market, you miss out all the opportunities for growth in between. In the past five years, the S&P 500 grew 66%.
If you took five years to save $100,000, that’s some serious growth you’d be missing out.
The second reason is more of a mental barrier:
It’s mentally much easier to commit $5,000 over a 20 small transactions vs $100,000 in one big transition, especially if $100,000 is all of your net worth.
The investing nerds call this ‘dollar cost averaging’ – which just means ‘buy many times’, the opposite being ‘lump sum investing’, or ‘buy everything together at once’
In the long run, dollar cost averaging is a less efficient way to invest as transaction costs add up. That said, it is extremely useful for when you want to overcome the mental barrier of perfectionism.
Our advice? Start small with dollar cost averaging, then work your way up. You can always switch to lump sum investing later when you are more experienced.
#2 Forget about looking for the perfect time
Of course there are perfect days to invest! On paper, March 23 – when the S&P500 bottomed out – was definitely a better day than most.
The main caveat is that of course, most of us only know this day retrospectively. In practice, most people were shaking on March 23, worrying that the market will fall further.
They most certainly did not dump 50% of their life savings in the stock market.
Also, may I give you a reality check? You and I? We’re most people.
We spend most of our days in office, we have family commitments to deal with, bosses to manage – often, monitoring the market full-time is a privilege many of us do not automatically have.
And there’s absolutely nothing to be ashamed about.
Our take? There’s no need to aim for perfection. Just go for good enough. Stay invested. Invest regularly. Don’t buy what you don’t understand. Keep things simple.
Which brings us to the next point.
#3 Don’t give yourself unnecessary pressure to be ‘skilled’
Many perfectionists won’t invest until they’ve learned ‘perfect skills’ aka – ‘one day I will read all the books then I will invest’.
This is of course, part of their ‘all or nothing’ persona – they set unrealistic expectations of themselves and dislike being a beginner.
The truth is for most average salarymen, ‘one day’ is a hypothetical future that rarely arrives simply because of how time-strapped we are.
Not to mention that being the ‘perfect investor’ is arguably impossible. Even with all the skills in the world, there is no investor who gets it right 100%. Getting it wrong is inevitable. You just gotta accept some red in your portfolio.
In our experience (and other people’s experience) – investing is often more about temperament than skill or knowledge. To sum it up in one line, it’s about investing consistently and not making wild decisions based on your emotions.
That’s really why we believe most people should be passive investors (as opposed to active investing) in the early stages in their investment journey. Whether or not they should be actively picking stocks later, is another conversation for another time.
Sure, passive investors might earn the scorn of smart-asses who deem it too “beginner.”
But if you look at it objectively, passive investing is a time-proven way to invest, works for the vast majority of people, and it’s premise is simple enough to understand.
All that’s left for you to do?
Develop the perfect investing temperament.
#4 Perfect doesn’t exist
Many perfectionists can’t complete anything or won’t let their work see light of day because their inner critics are too strong.
Some constantly feel a need to compare their results with (more experienced) individuals and feel discouraged when they don’t match up.
Others still suffer in silence because of the ‘perfect’ character they’ve created makes it incredibly hard to ask for help.
Over the years, the mantra we’ve used to step out of these types of thinking is this: “done is better than perfect”.
When it comes to investing, perfection might not even exist. Unless you can perfectly predict the future, or if you’re ridiculously lucky, you will never enter at the absolute bottom and exit at the absolute peak. We know this because:
- Crystal balls don’t exist
- You can’t rely on luck long-term
“Flawed but done” beats “theoretical perfection”. This doesn’t just apply to investing, but really, everything in life.
It’s better to publish an article than to keep it in the drafts folder. Your work gets critiqued. You learn.
Jogging 1.6km isn’t impressive. But it’s better than fantasising about running a marathon at home.
Similarly, putting your first $250 in the stock market via a roboinvestor isn’t glamorous and won’t impress the finance bros on subtle asian investing or r/wallstreetbets
But it’s much better than forever staying on the sidelines and wondering what it could have been if you invested in something.
Because if you play the perfectionist game of ‘all or nothing’, it is entirely possible that you end up with nothing.
Stay woke, salaryman.
A PLUG FOR OUR SPONSOR
We know starting your first investment can seem complicated. Staying invested? It’s even harder. If you want a truly fuss-free solution that is at least good enough, do consider Endowus, as they offer a one-stop platform providing investment products, brokerage services, and advice so that you invest in as many companies (through low cost funds)as possible, in a cost efficient way. Endowus allows you to invest globally, using your CPF, SRS and Cash in a single platform.
They’ve recently reduced their minimum investment amount to $888 for Lunar New Year. Promo code here – I get access fee credit if you sign up using this link and you get up $28 off yours (don’t feel obligated to use mine, if you are referring your friends).