8 Steps to Overcoming Investment Fear
Most people are initially hesitant when starting to invest in the stock market. A significant part of their concerns—also one of the most substantial obstacles for most investors—is the fear of financial loss.
Investing can cause valid and genuine fears for new investors. Even experienced investors can become scared at times. People make bad decisions, get carried away by emotions, and lose money because of situations outside of their control. If you've just started investing, you're getting into something new and unknown.
As with most fears, you can take actions to eliminate fear-based hesitations and become a successful investor.
Knowledge is an essential asset when you're investing. Understanding how the markets and stocks work can help alleviate investor fear. You can also reduce anxiety by becoming more familiar with the economy, investors, businesses, and government influences on the market.
Set Investing Goals
Ask yourself where you want to be financially in one, five, or 10 years. After learning about different types of investments and how they work, set target dates and financial goals for your assets.
Investing goals don't need to be complicated. Your goal could be to have $1 million in assets you can convert to cash by the time you're 65 for retirement income.
Setting these goals for yourself allows you to overpower fear with determination. Once you know what you want, you put yourself in an exciting and motivational place. Additionally, you have laid out a timeline for your financial journey.
Look at the Big Picture
Take a step back and re-evaluate your goals and what you're doing to achieve them. Look at what you have to lose while focusing on what you have to gain. For most people, investing is a marathon, not a sprint to the finish.
Evaluate your financial situation and decide how much you can invest. Determine how much of your income can be disposable—you don't want to lose everything you have if the stock market crashes. A good rule of thumb is not to invest more than you can afford to lose.
Start Small, Keep Contributing, Let It Grow
Don’t be afraid to start small. Begin with sums of money that you can afford to lose and not risk too much while learning. As you watch your balance grow, you'll become more comfortable investing more considerable sums if you can afford to.
Compounding interest is the primary principle behind investing. More money in your account means more interest is compounded.
When you keep contributing to your investment portfolio—buying more stocks or other investments—you have more money compounding interest for you.
Have an Investment Strategy
When you have an investing plan, it becomes easier to invest. There are several trading strategies published online and in books and taught in seminars. Some techniques may help you excel, while others could be confusing and counterproductive.
Once you become comfortable, you should slowly adjust your method over time to refine it until you are happy with it. Learn the different methods others are using and apply those skills and ideas.
Use a Simple Approach
Keep your strategies simple. Complicated investment strategies often require much more work and stress than more straightforward ones do—and often for no more profit. A simple investment approach prevents you from becoming overwhelmed or making mistakes, and it keeps you on track.
A simple strategy allows you to be flexible with your finances and assets.
When your plan is simple, it is easier to spot issues. If you find a problem with one of your assets, you adjust. Some examples of adjustments you might need to make are:
- Changing shares of the companies you trade
- Paying different prices per share
- Changing your holding strategy
- Using a different method of analysis
- Changing investment types
Find an Investment and Invest
Sometimes you have to bite the bullet and immerse yourself in something you may not be completely comfortable with. Once you start taking the steps along your investing journey, concepts begin to make more sense, and anxiety decreases.
After you've identified your strategy, you can begin choosing the investment types you want to invest in. Of the many different types, beginners might feel most at ease with their company-sponsored 401(k) or an individual retirement account (IRA). After watching your account rise and fall with the stock market, you'll be much more comfortable with other types of investments.
For a new investor, the first investment feels like driving into a fog. It appears cloudy from a distance, but the closer you get, the more you see.
Don't Become Discouraged
More often than not, things do not go as planned. Stock prices rise and fall, economies expand and contract, and investors with risky plans panic. Start small, learn from your mistakes—and others'—to minimize your losses.
When your investments lose value, get back up and start again. If you've assessed your risk tolerance and chosen a strategy and assets that align with your goals, you're more likely to recover the losses. Patience is a virtue, as they say—it is even more so when investing.