If you have looked into any financial advice, you’ve probably heard about the importance of investing. And if so many people are doing it, you should also be able to, right?
But something is holding you back. You might be thinking, “How can I invest when I can hardly get by?” or “I don't have money to lose” or “I don't know how to invest.”
By understanding that these fears are just that — fears — and educating yourself about how investing works, you may wonder why you didn't start earlier.
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Fear #1: I’ll Lose Money
It’s normal to fear losing money.
In fact, Alexander Rankin, director and financial adviser at Artisan Wealth, says loss aversion is one of the most common behavioral biases she sees in her clients.
But investing isn’t all or nothing and you can tailor it to your risk tolerance.
Solution: Align options to risk profile
You want to align your investments to your risk profile to avoid any nasty shocks that may cause you to want to abandon your strategy.
“Risk profiles generally range from cash (very conservative) to high growth (very aggressive),” says Rankin. “The higher the risk profile, the higher the likelihood of higher long-term returns and higher volatility.”
If you have a lower tolerance for risk, suitable options for investing include:
- Government bonds: Backed by the government, bonds provide stable income through regular interest payments.
- Exchange-traded funds: ETFs offer instant diversification across various companies or sectors and reduce risk compared to individual stocks. They can also be tailored to different risk levels and investment goals.
It’s also important to diversify, which is investing across many different asset classes and industry sectors. That way, when one area of your portfolio is performing poorly, other areas may be able to cover this and improve your overall returns.
READ MORE: Why Asset Allocation Is Essential for Investing
Fear #2: I Need To Be Rich
There’s long been a perception that investing is only for the rich.
After all, how can you be expected to invest when you’re living paycheck to paycheck or struggling to pay off your student loans?
Investing can seem like a “nice to have” — something only for the already wealthy who want to further pad their bank accounts.
But the truth is that everyone can and should invest, and it’s much more affordable than it used to be.
Solution: Start small and make it a habit
These days, investing is more accessible than ever, with micro-investing platforms and fractional trading allowing you to start investing for as little as a few dollars.
Plus, when you’re only investing small amounts, it’s easier to make it a regular habit — which is what you want investing to become.
“Some of the best and most successful investors I've worked with have made investing a habit,” says Rankin.
“You can do this too by setting up a separate bank account, nominate this as your ‘investment account,’ and get used to ‘paying yourself first’ each week. Once this account has built a sizable balance, open your first investment account, and transfer this habit across to that account.”
READ MORE: How to Start Investing When You Don’t Have Much Money
Fear #3: I Don’t Know Where To Start
Too much choice can be overwhelming, and there’s a lot of choice when it comes to investments. Stocks or bonds? 401(k) or IRA? Mutual funds or ETFs?
Without proper guidance, you might not know which way to go. But not all of us can afford our own financial advisors.
Thankfully, there are many products available, such as mutual funds, which offer support from experts who do it for you, or index funds that let you have a hands-off, passive approach.
Solution: Forget perfection
Natasha Janssens, founder of Women with Cents, offers these tips to overcome analysis paralysis:
- There is no one perfect investment. The key is to invest in lots of different companies and asset classes so you aren't locked into just one decision.
- Consider your criteria, such as fees, risk, and customer service if you’re choosing investments that are managed for you.
- Narrow your list of choices to three, then go with your gut and pick one!
While investing doesn’t need to be perfect, it is a good idea to at least learn a bit about it so you can feel comfortable in your choices.
Janssens suggests spending five minutes each day reading about or doing something investment-related.
READ MORE: How Much Time Does It Really Take to Manage Your Investments?
Fear #4: I Need To Be an Expert
A lack of knowledge makes us feel insecure and believe investing is harder or more complex than it needs to be.
How are you supposed to know which stock is going to perform best? How do you know when you should buy and sell?
The answer is you don’t.
Spending so much time analyzing or trying to time the market can prevent you from taking any action.
Solution: Focus on time in the market rather than timing the market
Strategies such as dollar-cost averaging can take the pressure off picking the “right” time to invest.
With dollar-cost averaging, you keep investing your chosen amount consistently, regardless of how the markets are doing.
Not only does this eliminate the guesswork, but investing in the market gradually over time can help smooth out your average returns.
“Remember that ‘time in the market' is typically a more effective strategy than ‘timing the market,'” says Janssens.
“Step away from the daily trading chart once you have invested. Investment is a long-term game, and the daily price fluctuations will only serve to make you second-guess your strategy.”
READ MORE: Active vs. Passive Investing: Which Is Best?
FAQs
What are the riskiest investments?
The riskiest investments are those that you need help understanding. This could include cryptocurrency, startups, venture capital, options, and futures.
What if I lose money?
The golden rule of investing is to never invest money you cannot afford to lose.
However, investing also isn’t a short-term strategy and you technically haven’t lost any money until you sell that asset at a loss — it could turn around in weeks or months and go back up again.
“If your investment is losing value, you can decide to sell to limit your losses. Or you can remind yourself that investing is a long game and hold on to it,” says Janssens.
“In the case of shares, you may even buy up some more while they are trading at a discount. Many investments can recover their value in the long run, so it's important not to panic.”
TL;DR: Getting Over Investing Fears
Understanding how different investments work, the level of risk they carry, and how and when investment returns are paid can help significantly reduce fear.
To dip your toes into investing and gain confidence, you could even try practicing in a controlled environment — a micro-investing platform is a great way to do this.
It’s not too late to get started with investing and, as the popular saying goes, “The best time was yesterday; the second best time is today.”
For more tips on overcoming your investing fears, check out these episodes of the Erika Taught Me podcast:
- How To Invest for Beginners (Step by Step)
- How To Become Better With Money
- Money & Investing Pitfalls to Avoid
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