LAST EDITED: 17 October 2022. This article first came out in Feb 2021. We decided to relook and see how this has aged.
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.
Procrastinating on investing is an even bigger problem in the year 2022, with news of war, inflation and rising interest rates giving us more excuses to get started, or even worse still, make us stop investing.
The whole process is like this: Perfectionism leads to procrastination, which in turn leads to paralysis.
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 as long as you stay invested.
The first reason for this is simple:
If you wait to have $100,000 before putting that in the stock market, you miss out on all the growth opportunities. At the time this article was first published, the five-year return on the S&P500 was 66%.
OCT 2022: Taking into account 2022’s bear market, the five-year return is 40.65%. Still not too shabby!
If you waited five years to start investing, that’s some serious growth you’d be missing out on.
The second reason is more of a mental barrier:
It’s mentally much easier to commit $5,000 over 20 small transactions vs $100,000 in one big transition, especially if $100,000 is all of your net worth.
This is why many people advocate for ‘dollar cost averaging’. They invest in smaller amounts multiple times, instead of throwing in large amounts at once (this is known as lump sum investing).
Admittedly, dollar cost averaging is a less efficient way to invest as you get charged per transaction, and over time the costs do 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, especially if you feel that the markets are uncertain. You can always switch to lump sum investing later when you are more experienced.
OCT 2022: If you had invested in one lump sum in 2021, you’d most likely be in the red and quite demoralised. We hope that you stay true to your long-term investing and hodl on.
If you had spread out your investments through dollar cost averaging, stick to your plans, and you’d still be able to invest during this period at a discount.
For those that decided to start small and dip their feet into the markets this year would have bought more shares/units when the markets are low in June and September, and bought less in the March and August highs.
If you’re looking for a good time to start, why not start now?
#2 Forget about looking for the perfect time
Of course there are perfect days to invest! On paper, March 23 2020– when the S&P500 bottomed out – was definitely a better day than most. (Or more recently, September 30 2022 would have been best to pick the bottom for a quick market recovery).
The main caveat is that of course, most of us only know this day retrospectively.
In practice, most people were shaking on days like those, worrying that the market would fall further.
Also, may I give you a reality check? You and I? We’re most people.
We spend most of our days in the 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. Do not blindly buy the dip.
OCT 2022:
Fast forward 2 years and we’re in a bear market. Retail investors have stopped caring about stocks. This is objectively a better time to invest than H2 2021. However, chances are the high costs of living and economic uncertainty are making you feel even more uncertain about a long-term commitment like investing.
We do not know where the market will go from here, but you may want to start smaller rather than hold off on your investment plans. But we do know in the long term the markets will rise. The stock market is a tool to beat inflation.
This 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 people, ‘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 investors) in the early stages of 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 its premise is simple enough to understand.
All that’s left for you to do?
Develop the perfect investing temperament.
OCT 2022:
2022 has been a humbling year. As the saying goes, everyone is a genius in a bull market. Many of last year’s popular stocks have since stomached losses even greater than the S&P500.
| Stock | Oct 2021 (USD) | Oct 2022 (USD) | % change |
| Sea Ltd (SEA) | $315.34 | $60.50 | -80.81% |
| Advanced Micro Devices Inc (AMD) | $103.64 | $67.94 | -34.45% |
| GameStop Corp (GME) | $42.77 | $26.39 | -38.30% |
| NVIDIA Corporation (NVDA) | $207.00 | $132.09 | -36.19% |
| Meta Platforms Inc (META) | $333.64 | $138.98 | -58.34% |
| Tesla Inc (TSLA) | $260.92 | $240.81 | -7.71% |
| PayPal Holdings Inc (PYPL) | $264.06 | $93.83 | -64.47% |
Our stand on this remains unchanged: Work on your earning power, and then invest passively.
#4 Perfect doesn’t exist
Many perfectionists can’t complete anything or won’t let their work see the 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 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
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Great article but ironic considering the exhortations to start small (“it’s okay for your first investment to be a tiny amount like $100 or $500.”) and the minimum sum to get started with the sponsor being $888.
I think they are being truthful and not totally pandering to the sponsor. Would you praise this article to the sky if they said start small below $1k instead?