Wed. Dec 8th, 2021

Fear: It’s the first thing that keeps people from investing in the stock market. It’s crazy how fear controls decisions about money.

We recently surveyed readers of The College Investor about what keeps them from investing (and there was a lot of talk about fear). Here are some of the things they shared:

  • I am uncertain about investing after the stock market crash a few years ago.
  • I know I need to invest, but I don’t want to lose money.
  • I think about starting investing almost daily now, but I can’t.
  • I want to get a better return on my money, but I’m not sure of the risk.
  • I was doing my taxes and I realized I hadn’t really invested outside of 401k. It made me think I could lose a million dollars or more when I retired.

See the common for investing trends?

  • Lose money today
  • Lose money in the future
  • Risk
  • Not knowing where to start

All of these are valid fears! And they are derived from valid reasons. But the truth is simple: not investing is probably the worst result of all (even if you don’t realize it), so you’ll have to overcome the fear of investing in the stock market.

Why are you afraid to invest?

Fear comes from the original “fight or flight” mechanism we needed when we were hunters and gatherers. It helped us overcome our senses to keep us out of danger. The feeling of fear overwhelms logic and other emotions and takes over your body.

But how does this apply to investment? Because in today’s society, not having money is as serious as not having food or shelter in Neanderthal times. Our mind knows that money = shelter = food = security. Therefore, losing money can cause huge fear.

The problem is that fear makes you ignore logic. And you have to fight to accept the truth, and that’s simple. But there are ways to overcome this fear and here are some steps to follow.

Accept the truth

The first step to overcoming fear is to accept the truth about the situation. In our case, the truth is the fear of investing. But what does that mean?

It is usually the fear of losing money or the fear of the risk that money entails. It can also be not knowing where to start, which increases the anxiety that you may make mistakes with your money.

The truth is that investing in broad index funds (or the total stock market) is the best way to grow your money in the long run (i.e. over 30 years or more). Throughout the history of the stock market, it has achieved an average return of 8%, which is higher than any other investment or savings account.

The opposite is true: if you don’t grow your money by investing, you could run the real risk of not having enough for retirement. Then all your fears come true for a different reason: you haven’t invested. If your money only grows at 1-2% per year, you will fall short in retirement. All your fears will come true when you experience food stamps at 80 years old. That is the truth.

Let me show you:

  • Invest: If you invest $ 200 a month for 40 years, with an 8% return, you will increase your money from $ 0 to $ 602,000.
  • Descending: If you only save $ 200 a month for 40 years, with a 1% return, you will increase your money from $ 0 to $ 22,000.

This is a big difference. Honestly, this is a life or death difference. You should be afraid not to invest.

Accept the change

Once you accept the truth, you have to agree with yourself (remember, that internal battle) to change. Change can be simple; perhaps establish an action plan to move towards this change.

With investment, change must overcome the fear of losing money. Therefore, your change may include steps:

  1. Educate yourself to invest (read How to start investing)
  2. Read a book (read our options for the best books here)
  3. Open an account: It can be your 401k or a Roth IRA or a regular brokerage account
  4. Deposit money into your account, but save it in cash
  5. Then invert a small portion when you’re ready

If you set up the plan, you are more likely to do so later. And if you don’t know where to start, you can consider something like a theft advisor or even a financial planner. Consult Vanguard’s personal advisory services for a low-cost option.

Secure a new solid floor

Finally, you need to build on your foundations and set up new solid ground. Use your action plan and start with education. Once you have investment education, you will notice that your fear will decrease (simply because you have more confidence).

Then, once you have an education, you need to open an account. You don’t have to move fast – progress through your action plan as you feel comfortable and build from there.

Doing it over and over again will help you slowly overcome your fear of investing and losing money. Education is key.

What other tips do you have for overcoming the fear of investing in the stock market?

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