How to Overcome the Fear of Investing

It’s no secret nor new information that many people are scared of investing in the stock market – a fear of investing if you will. This is understandable since many investors of this century have seen a fair few crises in their time. Be that the dot-com bubble of 2000, the great recession of 2008/09, the coronavirus pandemic of 2019 and beyond, to name a few.

Each crisis brought with it some form of a recession or bear market.

Even though a bull market often followed the bear ones, the significant losses incurred by many investors during times of crises have perhaps led to a hesitant foray into the world of investing.

And it could cost them hundreds of thousands if not millions in investment returns.

We’re here to help you and everyone understand how to overcome the fear of investing with a few simple rules.

Investing and Gambling Are Not The Same

First, though, it’s worth mentioning that investing is not gambling, although it is certainly possible to gamble with the stock market.

Gambling is done solely for the rush that comes before placing a bet that could put you into retirement…or bankruptcy.

Investing is done with a purpose and has a plan laid out beforehand.

RELATED: Investing Simplified

While you may not have a complete grasp of what exactly you’re investing in, the rules we’re going to give you today are specifically meant to keep you from turning your portfolio into a roulette table.

People have been investing in companies for hundreds of years.

And that system doesn’t seem to be going anywhere anytime soon.

It’s not even about choosing the right companies like some investors would have you believe.

Investing successfully depends entirely on making sure that you’re invested in such a way that you don’t sell out of your positions at the wrong time.

The moment you sell out of fear, your investing turns into gambling because you’re making decisions based on emotions rather than data.

On that note, if you want to learn more about when to sell a stock, do check out our sister article.

For now, without any more ado, let’s lay out these rules to follow to reduce the fear of investing.

Rule #1: Always Start With a Plan

Whatever investment strategy you decide to go with, it’s absolutely critical that you have a plan.

If you’re only investing through your company’s 401(k) or retirement program, it could be as simple as setting an automatic withdrawal that goes into that portfolio without any input from you.

When you have a plan in place, there is less emotion in your investment decision-making. This in turn will absolutely help reduce the fear involved.

At the end of the day, fear comes from not knowing what will happen in the future.

The more decisions you have to make in the process of investing, the more you’re going to start second-guessing those decisions.

This will also help you avoid selling when the stock market turns.

And make no mistake, the market will turn on us many times in the future.

If you take this into account in your investment plan, then you will dramatically reduce the likelihood of fear-based financial decisions.

Rule #2: Think Long Term

This rule goes hand in hand with the previous one. The inevitable market drops will more than likely create an environment of fear throughout the markets.

This was especially true in 2020 when many markets saw precipitous losses intraday, even causing so-called “circuit breakers” to halt trading several times on the major indices.

Look again at those equity charts. Since 2020, markets have returned to form and pressed even higher.

Selling out of your investments when the markets were tumbling would have locked in losses you would otherwise never have realised.

When you think about the long term, these near-term market drops mean nothing.

The market will constantly be correcting and even hibernating in the event of bear markets, but they will come back.

Barring any catastrophic global events that change the course of history, markets recover.

Sure, they might take a decade to recover – but generally speaking, they will recover at some stage.

When you look back at market history, this fact should come as a relief to those who fear the market falling.

The 2008 crash created an opportunity to learn more about portfolio and risk management rather than an example of why you should avoid the markets entirely.

Rule #3: Never Succumb to the Fear of Missing Out

In early 2021, several very keen retail investors made interesting bets on some stocks whose companies were on the verge of bankruptcy.

This gave rise to the now-popular concept of meme stocks.

Some people already had positions in the market prior to this for genuinely fundamental reasons and got lucky.

Those who hopped on the bandwagon after the stock had peaked ended up losing truly ludicrous amounts of money.

Aside from being driven by “FOMO”, those people likely also succumbed to the effects of greed.

If you don’t have a proven reason for buying into a stock position and are just afraid of missing out on a “money train,” stop.

You aren’t investing at that point – you’re gambling.

Removing this from your mind will further reduce the fear of investing and help you stay the course.

Rule #4: Understand The Risks

Investing in the markets comes with risks, and any good asset manager or brokerage will have the disclaimers to prove it.

When you invest, you should always understand what you stand to lose if things go horribly wrong.

Believe it or not, there are some funds accessible to just about anyone that are leveraged.

This means that, while you can see larger returns, you can also lose more than you invested.

This also goes for companies you want to invest in.

You should take some time to get an idea of the market risks that could affect stock prices before buying up all the shares you can.

If you’d like to learn how to measure the risk of a stock or how to calculate portfolio risk, take a look at our sister articles.

Rule #5: Never Over-Invest

Speaking of buying all the shares you can, you shouldn’t do that.

If you’re kept awake at night by a position you just opened, you’re over-invested and should consider reducing your position.

This rule is one of the most important when it comes to investing because you should always feel comfortable investing with the risk in your portfolio.

Even if you think something is a sure thing, you should keep to the plan you’ve already set up and follow it closely.

This is sort of the cherry on top of all of the other rules because, as long as you follow a plan, understand the risks involved, and stick to the long game, you will reduce any fear of investing and allow your portfolio to see steady gains over time.

Over-investing is also clearly obvious if the market turns on you.

If the market turns and you have a heightened fear that your position will bottom out, then you’re over-invested in that position.

Remember, even though investing isn’t quite “gambling”

What’s Next – Overcoming the Fear of Investing

You’ll notice that there are no numbers attached to any of these rules.

That’s because the specific percentages, stocks, and other metrics are different for every investor.

Some investors have no problem carrying short-term positions in derivatives markets while the mere idea of waking up several hundred dollars in the red might cause some nausea for others.

Never hesitate to reach out for help before you begin investing.

While you may not have an idea of what you can handle, there are others who can guide you through the process of setting up your investment plan with you.

And this doesn’t need to involve getting expensive financial advice from financial advisors whose goals aren’t necessarily aligned with yours.

Much of investing can be self-taught, either by experience and trial and error or by exploring courses in finance and investing.

Whichever route you decide to go with, remember that with investing, consistency is key.

You have to be in it for the long term. And despite what anyone might tell you, there really are no “shortcuts” or “get rich quick” options in financial markets.

While arbitrage opportunities can exist in the real world, these are incredibly hard to find. And you’d be competing with hedge funds that employ some of the brightest minds on the planet to find and exploit said arbitrage opportunities.

Competition in long-term investing, however, is relatively less.

That’s because many people simply don’t play the long game!

We hope you found this article useful and that it’s helping you overcome your fear of investing.