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How To Overcome Investment Fear?

After the last market crash, it's not easy to overcome your fears and start investing. Here are a couple of ways that can help you face with the challenge.
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor, which helps consumers make better financial decisions.  Silvermann’s areas of expertise include investing, banking, and credit cards. Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more. Aside from being a finance expert, his background includes working as a business and financial analyst. Above all, he is passionate about teaching people how to manage their money and helping millions on their journey to a better financial future.

Review & Fact Check: Baruch Mann (Silvermann)

Baruch Mann (Silvermann)

Financial Expert, The Smart Investor CEO

Experience

Baruch Mann (Silvermann) is a financial expert and founder of The Smart Investor. Above all, he is passionate about teaching people how to manage their money and helping millions on their journey to a better financial future.
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor, which helps consumers make better financial decisions.  Silvermann’s areas of expertise include investing, banking, and credit cards. Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more. Aside from being a finance expert, his background includes working as a business and financial analyst. Above all, he is passionate about teaching people how to manage their money and helping millions on their journey to a better financial future.

Review & Fact Check: Baruch Mann (Silvermann)

Baruch Mann (Silvermann)

Financial Expert, The Smart Investor CEO

Experience

Baruch Mann (Silvermann) is a financial expert and founder of The Smart Investor. Above all, he is passionate about teaching people how to manage their money and helping millions on their journey to a better financial future.

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Table Of Content

According to a survey conducted by Chart: Interest in Learning More About Investing in the U.S. 2020, by Generation

The thought of starting an investment portfolio can fill people with apprehension or even fear.  It is not natural for us to risk our money thru investments.

And there’s no escaping the memories of the stock market meltdown last Corona Crisis.

Add to this the sophisticated and sometimes highfalutin terminologies and complex technical products on the market.

It can be overwhelming to an ordinary individual who even has to worry about not losing all his savings.

Investing is pretty daunting. The idea of possibly losing everything you’ve worked for in a second is a paralyzing thought.

Couple that with the state of the economy that doesn’t seem to be going to a bright future – it doesn’t help allay those fears at all.  Good or bad economy, investing in the stock market always has its risks.

If you let fear take over, you will pass up some unimaginable opportunities and miss out on the big dollar tickets that have your name on them.

This present time is one of the best times for young adults to throw in their hat into the ring and begin their investing journey.

Look at a market downturn as a Black Friday Sale.  Wouldn’t you want to go shopping when prices are low knowing that after this, they will go up again?

Here’s something to think about: If investing is something you should be doing, why are we still discussing it?  Whatever the reason is, many people still cannot accept the idea that investing isn’t optional.

What many non-investors are afraid of are:

  • Emotional fear of failure (“I’m going to look like an idiot if I fail.”)
  • Rational fear of failure (“I don’t want to lose all my money.”)
  • Fear of people taking them for a ride or a fool (“These brokers are just smooth-talking me.”)
  • Fear of appearing ignorant when they don’t understand (“When it comes to a short and long position, I don’t get the long and the short of it.”)

These fears are all valid and it makes sense that people don’t want to make costly mistakes in anything.

The great news is there are a few tips and tricks you can use to remove any “fear-based” obstacles and eventually become a successful investor.

Do Your Homework

Being a financial arena, this one has its own jargon, with many of its terms sounding too technical.

To experienced traders and investors, the terms are natural and clear – but for an inexperienced person, it can seem like a language from outer space.

After all, who can understand things like “stop-loss order”, “forward contracts”, “arbitrage”, or “pink sheets”?

It’s frustrating when the people you turn to for advice use words and terms you have no idea of.  This wall of jargon boxes the insiders in and keeps the outsiders out.

To jumpstart your own lessons, you could buy some helpful books or take a class at your local community college.

Or, you can educate yourself for free by turning to the Internet.  For example, Investopedia has a lot of materials and simple user tools.

These include a glossary of investment terms that explains more than 8,000 items to help you strip away the mystique of the investing jargon.

You can also search for hundreds of personal finance blogs that contain volumes of information about the market, how you can start investing and tips on how to succeed.

A report by Gallup shows that a majority of Americans consider real estate as their best long-term investment from a pool of several investment options. Real estate leads the list of preferred long-term investments by 35%, against stocks at 21%, gold at 16%, and Savings accounts at 17%.

Have A Plan

Before starting to invest, sit down and write your goal and timeline.  State what you’re investing for and when you think you will need the money back.

If you anticipate that you’ll need money within the next three to five years, preservation should be your top goal.

Put your money in a safe and accessible instrument, such as a money market mutual fund or a high-yield online savings account.

A bank certificate of deposit could also be a good option.  Just remember that you’re locking in your money for the term of the CD and you might pay a fat penalty if you cash out too early.

If you have a longer time, growth is your goal.  Invest in a broad-based mutual fund that has a large stock portfolio.  In case anything happens to you, you can cash out anytime.  The downside is, you’ll have to pay taxes on the profit that you’ve made.

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Start Small

If you have a ton of money to invest but not enough courage, try some baby-steps by investing a small portion at a time through dollar-cost averaging.

It’s quite simple.

Take the total amount you have (say $12,000) then divide it by the number of months you plan to invest (let’s take 12 months) and invest that amount at the same time each month ($1,000 per month).

If you hit the market on a good month, you will be able to afford a lesser number of shares.

If the market has a bad month, your $1,000 will buy you more shares.  This way, there’s no need to worry about getting the timing perfectly.

As you spread your money over a year (or more), you lessen the risk of losing a lot of money when an immediate downturn happens.

Keep It Simple

Investment terminology can be downright disconcerting.  Diversified Investment.  Investment mix.  What do they mean?

You can make use of these things in your investment journey without having to get a master’s degree in business by investing in simple instruments such as a target-date fund.

Target-date funds are almost always mutual funds so therefore, the fund managers diversify the investments.

What they do is take the money you invest and spread them out by investing them in multiple types of stocks, bonds, and other investments.  They will also handle the asset allocation for your investment.

Depending on your needs and age, the fund managers will design the investment portfolio with a suitable mix of stocks and bonds.

As you grow older, the managers will even adjust the mix for you and at some point, they will begin to favor the allocation more toward bonds rather than stocks.

This is to make it more conservative (and less risky) as you approach your desired retirement age.

It is natural for you to be a little averse towards stocks because of the country’s last bear market.

However, the market continues to be the best source of many people for the opportunity to build wealth. The steps you will learn here should help you go back into the investment water with renewed confidence.

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Diversify Your Portfolio

Some investors make the rookie mistake of favoring just one company stock or investing in one particular kind of stock (for example, airline stocks).

You don’t want to do that because in case anything terrible happens to the company or industry, you risk permanently damaging your savings goal.

The tech bubble and the financial services fiascos are enough reminders to investors about the uncertainty of an industry sector.

Mutual funds provide instant diversification because your money can go into dozens of different stocks even if it is not too significant of an amount.

A short cut to diversification for new investors is by investing with a fund of funds that invests in other mutual stock funds.

If you are the conservative type of investor especially in this uncertain market, go for what they call a “balanced” fund that has stocks and bonds on their portfolios.

However, always keep in mind that for long-term goals, stocks still give the highest returns.

Be Ready For Losses

The reality is, not everything will go according to your plan or how you envision things to be.  As an investor, there is always a risk that you will make a wrong call.

In case that happens, you should try to learn everything you can from out of your mistakes because that can be even more valuable in the long run than making a profit.

The only way to recover is to rise up from your failure and start again.  Use the strategies we mention here to overcome your fears.

Accept that such things happen and be open to all circumstances.

Pay attention to the lessons you learn through good and bad experiences and use them to make better decisions later.  It is still up to you because if you really want it, you will find a way to overcome the obstacles.

Use these steps to become more confident in your moves so you can avoid dilly-dallying.

In investing, you have to start somewhere – the operative word is ‘start’.  Investors do not fall into just one type of mold.

Some will be very deliberate and would like to learn more first, some would have good timing, while others would have the natural knack for spotting good options and discerning bad choices.

The only similarity between investors is that each one will always have room to improve.  You are no different because you can always do better each deal.

Your goal is not to outdo everyone else but to be a better version of yourself as months go by. This is something you should focus on.

Understand Your Fear – And Act Accordingly

Not being confident of what you are doing gives birth to fear in investing; it’s not always the thought of losing money.

Also, if you can’t build up a nest egg to retire on, the government may not have the funds 20 or 30 years from now to support your lifestyle decently.  That is indeed a scary thought.

Therefore, it is now more critical that people know how to handle their own money and prepare for the future.  Success in investing should not come from luck but from the correct application of specific knowledge and skills.

Because the lack of knowledge or skills to invest gives way to fear, you can maximize your strengths and focus on your circle of competence.

Make a short list by narrowing down the universe of your investment choices and select one or two where you feel you’re really good at.

Then, devote your time to making yourself a subject matter expert on those two things.  An informed investor will be like a traveler with a very accurate and updated map.

Bottom Line

Let’s get it straight:  If you want to become successful as an investor, you must put in the time and thought.

The good thing is, learning about investing, putting your money in, and monitoring your investments in the stock market shouldn’t cost you more than the amount you’re actually investing.

If you have the time and motivation to read, learn about, and use the many free resources, you should be free from intimidation.

You can work hard and spend carefully – this can be your good foundation for financial health.

But it will not yield the same results as when you put your savings to work for you so that it can double, triple or even quadruple over time.

It can be confusing at first but if you’re serious about increasing your family’s wealth through wise investing, you can do so.  The market is open to everybody – and it beckons to you.

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Baruch Mann (Silvermann)

Baruch Mann (Silvermann)

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor, which helps consumers make better financial decisions.  Silvermann's areas of expertise include investing, banking, and credit cards. Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more. Aside from being a finance expert, his background includes working as a business and financial analyst. Above all, he is passionate about teaching people how to manage their money and helping millions on their journey to a better financial future.