Does anyone else having problems giving up cash reserves and investing?
I know this is all psychological.
Correct. This is just a market timing problem. Once you accept that you're not smarter than the market and cannot successfully market time, you can move on, invest in the market, and let the money work for you.
Here's the point that might help. You're just starting off market accumulation. You want the market to crash. You want it to plummet. You want it to go as low as possible, as long as possible, until the last second when you need it.
Your best case scenario is the market dropping 50% tomorrow. Your $11k goes to $5.5k, but you're not cashing out. You're buying the next $100k or $200k worth of shares at half price. That's a win.
So what you're really worried about is feeling foolish that the $11k goes to $5.5k. Why? It's a paper loss, and you're not going to sell. It will be back to $11k (and probably way more) before you ever need it, assuming this is all long-term money. And the rest of your investments--investments that should ultimately dwarf the $11k you currently have--would be at a lower price.
And assuming the market goes down, you're also not going to guess the bottom correctly either. How long has your money been sitting there? Did you jump in when the market dropped 10% right before the election? Did you go all in last January when the market dropped and Mr. P was predicting the coming of Red Dow(n)? Did you know that the market is up over 20% in the last year, and now 300% since February 2009.
Maybe you're trying to be the guy who avoided investing in October 2007, right before the market lost 56% (the second largest drop in history)? That would be great, right? Except do you know what the S&P 500 was in October 2007? 1562. The market is up 53% today from that peak, not including the additional 12% or so increase from dividends.
Also worth noting. The market goes up on average, which means that every day the market is statistically more likely to be up than down. So betting against it is a losing proposition.
That's a long way of saying you need to get over the fear of investing. Every time you wish the market would go up while you're still in the accumulation phase, you've made a psychological error. You're not a unique butterfly. You cannot time the market. But you can make a lot of money over the long-term by investing now, investing regularly, and avoiding selling (or withholding investments) whenever you see a news article suggesting the next big crash is right around the corner.
Good luck!