5 Effective Strategies to Overcome Your Fear of Investing

If you find yourself feeling apprehensive about investing in the stock market, rest assured that you’re not alone. In fact, stock ownership has been on the decline, and a recent poll suggests that the haunting memories of the last bear market may be a major factor behind this trend.

According to a comprehensive Gallup survey, only 54 percent of U.S. adults currently own stocks, including those held through mutual funds and retirement accounts such as 401(k)s. This percentage has dropped from the pre-bear market figure of 62 percent. The downturn, which commenced in late 2007 and persisted until early 2009, witnessed the market plummeting by over 50 percent. Gallup attributes the decline in stock ownership to the lasting impact of this distressing period.

“It appears that the financial crisis and recession may have fundamentally reshaped Americans’ perception of stocks as an investment,” stated the company on its website. “The collapse in stock values in 2008 and 2009 seems to have left a more significant impression on these individuals than the subsequent bull market, as well as the research demonstrating the strong historical performance of stocks as a long-term investment.”

If you find yourself resonating with this sentiment, fear not. I have compiled a set of suggestions to help you overcome your concerns and embark on your investment journey with confidence. (Also, don’t miss out on our insightful guide: How to Overcome These 5 Scary Investment Challenges.)

1. Embrace a Healthy Fear of Not Investing

If safety is your primary concern, few places offer the security of a bank. With deposits insured by the Federal Deposit Insurance Corporation (FDIC), you can deposit up to $250,000 in a bank account, knowing that even if the bank were to face insolvency, the federal government would ensure the return of your money.

While maintaining a bank account is a wise choice for emergency savings, it’s important to note that currently, many banks offer a meager interest rate of just 0.01 percent. Consequently, they become a less than ideal option for pursuing long-term financial goals like retirement planning.

To put this into perspective, let’s assume you’re 30 years old and deposit $10,000 at a mere 0.01 percent interest rate. After 40 years, your $10,000 will have grown to a grand total of — hold your breath — $10,040. Yes, you read that correctly. Over a span of four decades, your investment will have yielded a measly $40. Moreover, when accounting for inflation, the purchasing power of your initial $10,000 will have significantly eroded.

Now, consider an alternative scenario where you earn a conservative 7 percent interest rate. Over the same 40-year period, your $10,000 investment will have blossomed into a substantial $150,000. And keep in mind, 7 percent is a conservative estimate, considering that the stock market has historically delivered an average annual return of 10 percent.

Given these contrasting outcomes, it becomes apparent that rather than being fearful of investing, it is more logical to harbor a fear of not investing.

2. Gain Insights from Market History

Many investment blunders can be traced back to emotional decision-making. When the market experiences a downturn, fear often drives some individuals to hastily withdraw their funds, ultimately leading to detrimental consequences. However, equipping yourself with a basic understanding of market history can help you stay the course during turbulent times.

It’s essential to recognize that the longer you keep your money invested, the higher the likelihood of earning positive returns. Morningstar conducted a comprehensive analysis of the stock market’s performance across one-, five-, and fifteen-year periods from 1926 to 2016. The findings revealed that 74 percent of one-year periods yielded positive returns, while an impressive 86 percent of five-year periods generated gains. Remarkably, every single 15-year period in the analysis showed positive growth. In other words, based on 90 years of market history, if you remain invested for at least 15 years, it becomes almost certain that your investments will yield positive returns.

Furthermore, emphasizing the importance of time in weathering significant market downturns, Morningstar’s research highlights a compelling example. Suppose an individual had invested $100,000 in the stock market at the beginning of 2007. By early 2009, the value of their investment would have dropped by nearly 50 percent. Undeniably, this represents a brutal setback. However, had they persisted with their investment, their portfolio would have almost doubled in value by January 2017. Despite the tumultuous downturn, their average annual return over that 10-year period would have been close to 7 percent. (Be sure to explore our article: How Risk-Averse Investors Can Successfully Enter the Stock Market)

3. Start Small and Steady

If you possess a substantial sum to invest but find it challenging to take the plunge, consider adopting a dollar-cost averaging approach. This strategy involves spreading your investment over time, mitigating the risk of making a significant investment all at once. Here’s how it works:

Suppose you have $12,000 to invest, and you plan to invest over a period of 12 months. Simply divide the total amount by the number of months ($12,000 ÷ 12 = $1,000 per month) and invest this fixed amount at regular intervals, such as the same date every month.

Dollar-cost averaging safeguards against the need for impeccable market timing. During favorable market months, your investment will purchase fewer shares, while in downturns, it will buy more. By adopting this approach, you can alleviate the concern of making one ill-timed investment and minimize the risk of incurring substantial losses. (Discover if Dollar Cost Averaging is the Right Strategy for You)

4. Embrace Simplicity

Investment jargon and complex concepts can often deter individuals from entering the world of investing. Terms like diversification and asset allocation may sound overwhelming. However, you can effectively implement these beneficial concepts without needing a Wall Street job by investing in a straightforward yet powerful tool: a target-date fund.

Target-date funds, being mutual funds, inherently offer diversification, meaning that your investment is spread across multiple stocks, bonds, or other assets. Furthermore, these funds handle asset allocation decisions on your behalf, expertly balancing the mix of stocks and bonds based on your age. As you approach your intended retirement date, the fund automatically adjusts its allocation, gradually shifting towards a more conservative stance, with a greater emphasis on bonds.

Certainly! Here’s an additional strategy to complement the four effective strategies mentioned earlier:

5. Join an Investment Group or Seek Community Support

Overcoming the fear of investing can be made easier by joining an investment group or seeking support within a community of like-minded individuals. Investing can often feel isolating, and having a supportive network can provide encouragement, guidance, and accountability.

Investment groups, whether they are local clubs, online communities, or organized meetups, offer a platform for individuals to share their investment experiences, exchange ideas, and learn from one another. Being part of a group allows you to tap into the collective wisdom of its members, gain insights into different investment approaches, and discuss investment opportunities and strategies.

In an investment group, you can engage in discussions about market trends, specific investment options, and portfolio management techniques. This collaborative environment can help demystify investing and provide you with diverse perspectives on different investment opportunities. Hearing success stories, learning from others’ mistakes, and receiving support during challenging market conditions can boost your confidence and help you navigate the investment landscape with greater ease.

Moreover, investment groups often invite guest speakers, such as seasoned investors or industry professionals, to share their knowledge and expertise. These presentations and workshops can deepen your understanding of investment principles, offer valuable insights, and provide you with practical strategies to implement in your own investment journey.

If joining an investment group isn’t feasible for you, seek support from friends, family, or online communities with a focus on investing. Engaging in conversations about investments and sharing experiences with others who have similar goals can be motivating and empowering.

Remember, the goal of joining an investment group or seeking community support is to create an environment that fosters learning, encourages collaboration, and helps you stay focused on your investment objectives. The collective wisdom and support of such a group can significantly enhance your investment knowledge and confidence, ultimately helping you overcome any lingering fears or apprehensions about investing.

By incorporating this strategy into your approach, you can surround yourself with a supportive community of investors who can inspire and guide you on your investment journey. Together, you can navigate the challenges, celebrate successes, and build the confidence needed to overcome your fear of investing.

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It’s understandable that the last bear market may have dampened your enthusiasm for stock market investments. However, it is crucial to recognize that the market remains one of the most promising avenues for wealth accumulation. By implementing the strategies described above, you can confidently wade back into the investment waters without fear.

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